Moderating role of CEO compensation in lean innovation strategies of Chinese listed family firms

Abstract

PurposeThe purpose of this paper is to examine the impact of Chinese listed family firms on lean innovation strategies. Additionally, the authors also examined the moderating role of CEO compensation on the family ownership and lean innovation strategies relationship.Design/methodology/approachData is obtained from CSMAR database about Chinese family firms listed at Shenzhen Stock Exchange and Shanghai Stock Exchange. Panel data comprising of firm year observations from 2007 to 2016 is analyzed using STATA.FindingsFamily firms are proactive towards research and development investment (innovation input) as well as towards patent applications (innovation output). Moreover, family firms show propensity towards patent applications and towards converting their R&D investment into granted patent applications. CEO compensation negatively moderates the nexus between family firms and lean innovation which seriously needs to be addressed to reduce agency costs.Research limitations/implicationsThe study has focused on Chinese market only. The study is useful for policy makers to address the serious concerns identified in the conclusion section, i.e. effectiveness of CEO compensation in addressing the lean innovation strategies in emerging economy like that of China.Originality/valueGiven the usually considered conservative approach of family firms towards innovation, this is the first study which has tested the moderating role of CEO compensation on family firms and lean innovation relationship in an emerging economy. This study is unique because it provides a detailed analysis of lean innovation process by splitting the process into different stages. The negative moderating impact of CEO compensation raises new concerns to resolve agency conflicts.