Parental Leave Policies and Innovation Performance in SMEs

Abstract

When is the parental leave taken by top management team (TMT) members beneficial or detrimental for the innovation performance of SMEs? Drawing from upper-echelon theory and role theory, we advance a model that proposes that smaller TMTs and TMTs with longer tenures have a better potential for leveraging the benefits and reducing the shortcomings of parental leave-taking by their members. We test this model using unique data on a large sample of Swedish SMEs. We find that TMT members’ parental leave has a weak positive impact on SMEs’ innovation outputs. Conversely, the effect is strongly positive when TMT size is small and/or TMT tenure is high. Theoretical and practical implications of parental leave policies for SME intonation are discussed.