Family Control and Corporate Innovation in Stakeholder-Oriented Corporate Governance

Hideaki Sakawa,Naoki Watanabel

doi:10.3390/su13095044

Abstract

This study investigates the effects of family control on corporate innovation activity in publicly traded firms in Japan under stakeholder-oriented corporate governance. In a sample of 14,991 firm-year observations in publicly traded firms in Japan during the period 2007 to 2016, we tested whether family owners or board members are enhancing research and development investments. While theoretical perspectives of principal–principal conflicts generally assume a negative relationship between family control and research and development intensity, we find a positive relationship, which supports the stewardship theory perspective. Additionally, we find that main bank ownership positively moderates the relationship between family control and research and development, suggesting that the main bank could affect the decision-making of family board members in the long-term. This result is supported by the close relationships between the main bank and client firms. Furthermore, our study reveals that the shareholder orientation of foreign shareholders suppresses family board members’ long-term orientation. We conclude that the exploitation presumed by principal–principal conflict perspectives has not been thoroughly investigated in Japan’s stakeholder-oriented corporate governance system.

Highlights

Corporate innovation is crucial to a firm’s competitive advantage to realize the sustainable business management and is often influenced by the corporate expenses of research and development (R&D) activities [1,2,3]
These results show that family board representation would enhance R&D intensity, consistent with Hypothesis
The family business literature focuses on two conflicting views which predict on the influence of family involvement on a firm’s strategic decision making

Summary

Introduction

Corporate innovation is crucial to a firm’s competitive advantage to realize the sustainable business management and is often influenced by the corporate expenses of research and development (R&D) activities [1,2,3]. From a family control perspective, family owners (instances where the corporate entity is controlled by a specific family due to their large number of shares in the company) tend to maintain control of their firms [7]. Owners do not tend to be in favor of R&D investment to realize long-term growth [10]. Agency theory suggests that concentrated ownership is likely to promote innovation activity because large shareholders have strong incentives to monitor management and promote innovation strategy and growth. Several empirical studies have found that family control can affect a positive influence on firm innovation [13,14]

Results

Discussion

Conclusion