The Effect of Owner Birth Order on R&D Investments in Family Firms

Abstract

The debate on whether family firms are risk-averse or risk-taking in R&D activities is yet inconclusive. Move beyond prior studies assuming family influence as a whole, this study aims to investigate the impact of a nascent but essential factor, family owner’s early life experience which is largely captured by their birth orders, on R&D investment decisions. Drawn on evolutionary theory related to birth order effect and family innovation literature, we conceptualize that birth order of family owners will affect how they perceive the preservation of socioemotional endowment and react to risk-taking strategy, namely R&D investment in this study. We propose that later-born family owners tend to be risk-takers and invest more in R&D projects compared with those who are earlier-borns. However, the proposed enduring birth order effect will also be hindered or promoted in the family firms where family management also sets boundaries. We further expect that the positive association between birth order and R&D investments is weakened and strengthened respectively when a family member is a chairperson on the board and when there is a presence of owner-CEO duality. We confirm our hypotheses by using a sample of 747 firm-year observations from Chinese listed family firms during the period of 2006-2014. The results confirm the role of “family” life in an understanding of innovation heterogeneities among family firms, and we believe it also serves as a strong case to cross-pollinate ideas among family business, innovation strategy and family science which is much-needed in management and strategy area.