Family Firms and Research and Development Investment: The Moderator Effect of the Board Composition

Guadalupe del Carmen Briano-Turrent; Karen Watkins-Fassler; Lázaro Rodríguez-Ariza; Carolina Reyes-Bastidas

doi:10.24310/ejfbejfb.v13i1.16065

Authors

Guadalupe del Carmen Briano-Turrent Universidad Autónoma de San Luis Potosí Mexico https://orcid.org/0000-0001-8241-0385
Karen Watkins-Fassler Instituto Tecnológico Superior de Misantla, Mexico / Universidad Internacional de La Rioja, Spain Mexico https://orcid.org/0000-0002-2715-9420
Lázaro Rodríguez-Ariza University of Granada, Spain Spain https://orcid.org/0000-0002-5650-7703
Carolina Reyes-Bastidas Universidad Mariana, Colombia Colombia https://orcid.org/0000-0002-3903-8597

DOI:

https://doi.org/10.24310/ejfbejfb.v13i1.16065

Keywords:

Agency theory, Family firms, Latin America, Research and development, Socioemotional wealth

Abstract

From the perspective of agency and socio-emotional theories, the family firm’s innovation behavior differs from non-family companies. We investigate the relationship between the family element and Research and Development (R&D) investment, and how the moderating effect of the board composition affects this relationship. Using a panel data composed by 1,284 observations-year during the period 2004-2014 from Argentina, Brazil, Chile and Mexico, empirical results show that family firms increase R&D investment when the moderating effect of the board composition is included. For instance, larger boards, the independence of the board, the COB-CEO duality and female directors motivates to a higher R&D and capital expenditures. These results confirm that board composition constitutes a monitoring mechanism of family members' actions, which leads to an increase of innovation strategies and suggest that family firms promote a long-term orientation with the purpose of preserving the wealth for next generations. This research contributes to the international literature analyzing a region not explored before and characterized by a weak institutional framework and lower rates on R&D investment compared to other emerging countries.

Downloads

Download data is not yet available.

Metrics

Metrics Loading ...

References

Aguinis, H., Villamor, I., Lazzarini, S. G., Vassolo, R. S., Amoro’s, J. E., & Allen, D. G. (2020). Conducting management research in Latin America: Why and what’s in it for you? Journal of Management, 46(5), 615–636. https://doi.org/10.1177/0149206320901581

Aparicio, G., Iturralde, T., & Sanchez-Famoso, V. (2019). Innovation in family firms: A holistic bibliometric overview of the research field. European Journal of Family Business, 9(2), 71-84. https://doi.org/10.24310/ejfbejfb.v9i2.5458

Aragón, J.A., Garci?a, V.J., & Cordón, E. (2007). Leadership and organizational learning’s role on innovation and performance: lessons from Spain. Industrial Marketing Management, 36(3), 349–359. https://doi.org/10.1016/j.indmarman.2005.09.006

Arzubiaga, U., Maseda, A., & Iturralde, T. (2017). Exploratory and exploitative innovation in family businesses: the moderating role of the family firm image and family involvement in top management. Review of Managerial Science, 13, 1-31. https://doi.org/10.1007/s11846-017-0239-y

Baliga, B., Moyer, R., & Rao, R. (1996). CEO duality and firm performance: What’s the fuss? Strategic Management Journal, 17, 41-53. https://www.jstor.org/stable/2486936

Bannò, M., Coller, G., & D’Allura, G.M. (2021). Family firms, women, and innovation. Sinergie. Italian Journal of Management, 39(2), 59-74. https://doi.org/10.7433//s115.2021.04

Barber, B.M. & Odean, T. (2001). Boys will be boys: Gender, overconfidence, and common stock investment. The Quarterly Journal of Economics, 116(1), 261–292, https://doi.org/10.1162/003355301556400

Basu, N., Dimitrova, L., & Paeglis, I. (2009). Family control and dilution in mergers. Journal of Banking & Finance, 33(5), 829-841. https://doi.org/10.1016/j.jbankfin.2008.09.017

Becerra, M., Cruz, C., & Graves, C. (2020). Innovation in family firms: The relative effects of wealth concentration versus family-centered goals. Family Business Review, 33(4), 1-21. https://doi.org/10.1177/089448652095370

Berrone, P., Cruz, C., Go?mez-Meji?a, L., & Larraza-Kintana, M. (2010). Socioemotional wealth and corporate responses to institutional pressures: Do family-controlled firms pollute less? Administrative Science Quarterly, 55, 82-113. https://doi.org/10.1080/0969160X.2011.593832

Berrone, P., Duran, P., Gómez-Meji?a, L. R, Heugens, P. P., Kostova, T., & van Essen, M. (2022). Impact of informal institutions on the prevalence, strategy, and performance of family firms: A meta-analysis. Journal of International Business Studies, 53, 1153–1177. https://doi.org/10.1057/s41267-020-00362-6

Block, J. (2012). R&D investments in family and founder firms: An agency perspective. Journal of Business Venturing, 27, 248-265. https://doi.org/10.1016/j.jbusvent.2010.09.003

Braun, M. & Sharma, A. (2007). Should the CEO also be chair of the board? An empirical examination of family-controlled public firms. Family Business Review, 20(2), 111-126. https://doi.org/10.1111/j.1741-6248.2007.00090.x

Briano-Turrent, G.C., Rodríguez-Ariza, L., & Watkins-Fassler, K. (2022). Family CEOs and CSR performance in Ibero-American family firms. The Mexican Journal of Economics and Finance, 17(4), 1-16. https://doi.org/10.21919/remef.v17i4.755

Briano-Turrent, G.C., & Rodriguez-Ariza, L. (2016). Corporate governance ratings on listed companies: An institutional perspective in Latin America. European Journal of Management and Business Economics, 25, 63-75. https://doi.org/10.1016/j.redeen.2016.01.001

Briano-Turrent, G.C., Watkins-Fassler, K., & Puente-Esparza, M.L. (2020). The effect of the board composition on dividends: The case of Brazilian and Chilean family firms. European Journal of Family Business, 10, 43-60. https://doi.org/10.24310/ejfbejfb.v10i2.10177

Briano-Turrent, G.C., Li, M., & Hongfeng, P. (2020). The impact of family-CEOs and their demographic characteristics on dividend payouts: Evidence from Latin America. Research in International Business and Finance, 51, https://doi.org/10.1016/j.ribaf.2019.101086

Briano-Turrent, G.C. (2022). Female representation on boards and corporate ethical behavior in Latin American companies. Corporate Governance: An International Review, 20(1), 80-95. https://doi.org/10.1111/corg.12416

Brunninge, O., Nordqvist, M., & Wiklund, J. (2007). Corporate governance and strategic changes in SMEs: The effects of ownership, board composition and top management teams. Small Business Economics, 29, 295-308. https://www.jstor.org/stable/40229558

Cadena, A., Remes, J., Majluf, N., & de Oliveira, A. (2017). Where will Latin American growth come from? Discussion Paper. McKinsey Global Institute. Obtained from: https://www.mckinsey.com/

Calabrò, A., Vecchiarini, M., Gast, J., Campopiano, G., De Massis, A., & Kraus, S. (2019). Innovation in family firms: A systematic literature review and guidance for future research. International Journal of Management Review, 21(3), 317-355. https://doi.org/10.1111/ijmr.12192

Canale, F., Müller, C., Laveren, E., & Cambré, B. (2023). The role of the family and the institutional context for ambidexterity in Latin American family firms. Journal of Family Business Strategy, In press. https://doi.org/10.1016/j.jfbs.2023.100567

Carney, M. (2005). Corporate governance and competitive advantage in family-controlled firms. Entrepreneurship Theory and Practice, 29, 249-265. https://doi.org/10.1111/j.1540-6520.2005.00081.x

Chen, H.L. (2009). Family ownership, board independence, and R&D investment. Family Business Review, 22(4), 347-362. https://doi.org/10.1177/0894486509341062

Chen, H., & Huang, Y. (2006). Employee stock ownership and corporate R&D expenditures: Evidence from Taiwan’s information- technology industry. Asia Pacific Journal of Management, 23, 369-384. https://doi.org/10.1007/s10490-006-9005-4

Chen, H., Hsu, C., & Chen, Y. (2015). The impact of family control on the top management compensation mix and incentive orientation. International Review of Economics and Finance, 55, 965-988. https://doi.org/10.1016/j.iref.2014.01.005

Chen, H.L. & Hsu, W.T. (2009). Family ownership, board independence, and R&D investment. Family Business Review, 22(4), 347–362. https://doi.org/10.1177/0894486509341062

Choi, Y. R., Zahra, S. A., Yoshikawa, T., & Han, B. H. (2015). Family ownership and R&D investment: The role of growth opportunities and business group membership. Journal of Business Research, 68(5), 1053-1061. https://doi.org/10.1016/j.jbusres.2014.10.007

Chrisman, J., Chua, J., Kellermanns, F., & Chang, E. (2007). Are family managers agents or stewards? An exploratory study in privately held family firms. Journal of Business Research, 60(10), 1030-1038. https://doi.org/10.1016/j.jbusres.2006.12.011

Chrisman, J., & Patel, P. (2012). Variations in R&D investments of family and nonfamily firms: Behavioral agency and myopic loss aversion perspectives. Academy of Management Journal, 55(4), 976-997. https://doi.org/10.5465/amj.2011.0211

Christensen-Salem, A., Mesquita, L. F., Hashimoto, M., Hom, P. W., & Gómez-Mejía, L. R. (2021). Family firms are indeed better places to work than non-family firms! Socioemotional wealth and employees’ perceived organizational caring. Journal of Family Business Strategy, 12(1), Article 100412. https://doi.org/10.1016/j.jfbs.2020.100412

Clarysse, B., Knockaert, M., & Lockett, A. (2007). Outside board members in high tech start-ups. Small Business Economics, 29, 243-259. https://www.jstor.org/stable/40229555

Cirillo, A., Ossorio, M., & Pennacchio, L. (2019). Family ownership and R&D investment: the moderating role of banks and private equity. Management Decision, 57(7), 1675-1694. https://doi.org/10.1108/MD-07-2016-0454

De Massis, A., Ding, S., Kotlar, J., & Wu, Z. (2016). Family involvement and R&D expenses in the context of weak property rights protection: an examination of non-state-owned listed companies in China. The European Journal of Finance, 24(16). 1–26. https://doi.org/10.1080/1351847X.2016.1200994

De Massis, A., Frattini, F., & Lichtenthaler, U. (2012). Research on technological innovation in family firms: present debates and future directions. Family Business Review, 26(1), 10-31. https://doi.org/10.1177/0894486512466258

Dibrell, C. & Moeller, M. (2011). The impact of a service dominant focus strategy and stewardship culture on organizational innovativeness in family-owned businesses. Journal of Family Business Strategy, 2, 43–51. https://doi.org/10.1016/j.jfbs.2011.01.004

Faccio, M., Marchica, M.T., & Mura, R. (2016). CEO gender, corporate risk-taking, and the efficiency of capital allocation. Journal of Corporate Governance, 39, 193-209. https://doi.org/10.1016/j.jcorpfin.2016.02.008

Fahlenbrach, R. (2009). Founder-CEOs, investment decisions and stock market performance. Journal of Financial and Quantitative Analysis, 44(2), 439-467. https://doi.org/10.1017/S0022109009090139

Fama, E., & Jensen, M. (1985). Organizational forms and investment decisions. Journal of Financial Economics, 14, 101-119. https://doi.org/10.1016/0304-405X(85)90045-5

Fernández, Z., & Nieto, M. (2006). Impact of ownership on the international involvement of SMEs. Journal of International Business Studies, 37, 340-351. https://www.jstor.org/stable/3875263

Fernández-Torres, Y., Ramajo-Hernández, J., & Díaz-Casero, J.C. (2019). Instituciones y volatilidad del crecimiento económico: Una aproximación a América Latina y el Caribe. Cuadernos de Economía, 38(76), 81-108. https://doi.org/10.15446/cuad.econ.v38n76.59913

Francoeur, C., Labelle, R., & Sinclair-Desgagné, B. (2008). Gender diversity in corporate governance and top management. Journal of Business Ethics, 81(1), 83-95. https://www.jstor.org/stable/25482199

Fuetsch, E. (2022). What Drives Innovation in Family Farms? The Roles of Socioemotional Wealth and Diverse Information Sources. European Journal of Family Business, 12(2), 184-204. https://doi.org/10.24310/ejfbejfb.v12i2.13881

Gillan, S. (2006). Recent developments in corporate governance: An overview. Journal of Corporate Finance, 12, 281-402. https://doi.org/10.1016/j.jcorpfin.2005.11.002

Gómez-Mejía, L.R., Haynes, K.T., Núñez-Nickel, M., Jacobson, K.J., & Moyano-Fuentes, J. (2007). Socioemotional wealth and business risks in family controlled firms: Evidence from Spanish olive oil mills. Administrative Science Quarterly, 52(1), 106-137. https://www.jstor.org/stable/20109904

Gómez-Mejía, L.R., Makri, M., & Larraza-Kintana, M. (2010). Diversification decisions in family-controlled firms. Journal of Management Studies, 47(2), 223-252. https://doi.org/10.1111/j.1467-6486.2009.00889.x

Gómez-Mejia, L.R., Campbell, J.T., Martin, G., Hoskisson, R.E., Makri, M., & Sirmon, D. G. (2014). Socioemotional wealth as a mixed gamble: Revisiting family firm R&D investments with the behavioral agency model. Entrepreneurship Theory and Practice, 38(6), 1351-1374. https://doi.org/10.1111/etap.12083

Gómez-Mejía, L.R., Mendoza-Lopez, A., Cruz, C., Duran, P., & Aguinis, H. (2023). Socioemotional wealth in volatile, uncertain, complex, and ambiguous contexts: The case of family firms in Latin America and the Caribbean. Journal of Family Business Strategy, 100551. https://doi.org/10.1016/j.jfbs.2022.100551

Gonzales-Bustos, J.P., Hernandez-Lara, A.B., Li, X. (2017). Board composition in family and non-family innovative businesses. Corporate Ownership and Control, 15(1), 459–466. https://doi.org/10.1016/j.heliyon.2020.e04980

Gonzales-Bustos, J.P., Hernández-Lara, A.B., & Li, X. (2020). Board effects on innovation in family and non-family business. Heliyon, 6(9), e04980. https://doi.org/10.1016/j.heliyon.2020.e04980

González, M., Molina, C., Pablo, E., & Rosso, J. (2017). The effect of ownership concentration and composition on dividends: Evidence from Latin America. Emerging Markets Review, 30, 1-18. https://doi.org/10.1016/j.ememar.2016.08.018

Graves, C., & Thomas, J. (2006). Internationalization of Australian family businesses: A managerial capabilities perspective. Family Business Review, 19(3), 207-224. https://doi.org/10.1111/j.1741-6248.2006.00066.x

Hernández-Lara, A.B., & Gonzales-Bustos, J.P. (2020). The influence of family businesses and women directors on innovation. Applied Economics, 52(1), 1-16. https://doi.org/10.1080/00036846.2019.1638496

Herrera-Echeverri, H., Galli-Geleilate, J., Gaitan-Riaño, S., Haar, J., & Soto-Echeverry, N. (2016). Export behavior and board independence in Colombian family firms: The reverse causality relationship. Journal of Business Research, 69(6), 2018-2029. https://doi.org/10.1016/j.jbusres.2015.10.147

Hillman, A. J., & Dalziel, T. (2003). Boards of directors and firm performance: Integrating agency and resource dependence perspectives. The Academy of Management Review, 28(3), 383–396. https://doi.org/10.2307/30040728

Hussainey, K., & Al-Najjar, B. (2012). Understanding the determinants of RiskMetrics/ISS Ratings of the quality of UK companies' corporate governance practice. Canadian Journal of Administrative Sciences, 29, 366-377. https://doi.org/10.1002/cjas.1227

Jiang, F., Shi, W., & Zheng, X. (2020). Board chairs and R&D investment: Evidence from Chinese family-controlled firms. Journal of Business Research, 112, 109-118. https://doi.org/10.1016/j.jbusres.2020.02.026

Kammerlander, N., Patzelt, H., Behrens, J., & Röhm, C. (2020). Organizational ambidexterity in family-managed firms: The role of family involvement in top management. Family Business Review, 33(4), 393–423. https://doi.org/10.1177/0894486520961645

Khoury, T.A., Junkunc, M., & Mingo, S. (2015). Navigating political hazard risks and legal System quality: venture capital investments in Latin America. Journal of Management, 41(3), 808–840. https://doi.org/10.1177/0149206312453737

Kor, Y. (2006). Direct and interaction effects of top management team and board compositions on R&D investment strategy. Strategic Management Journal, 27(11), 1081-1099. https://www.jstor.org/stable/20142398

Kraus, S., Pohjola, M., & Koponen, A. (2012). Innovation in family firms: an empirical analysis linking organizational and managerial innovation to corporate success. Review of Managerial Science, 6, 265-286. https://doi.org/10.1007/s11846-011-0065-6

Lane, S., Astrachan, J., Keyt, A., McMillan, K. (2006). Guidelines for family business boards of directors. Family Business Review, 19(2), 147–167. https://doi.org/10.1111/j.1741-6248.2006.00052.x

La Porta, R., López de Silanes, F., & Shleifer, A. (1999). Corporate ownership around the world. Journal of Finance, 54(2), 471-517. https://www.jstor.org/stable/2697717

Le Breton-Miller, I., & Miller, D. (2006). Why do some family businesses out-compete? Governance, long-term orientation, and sustainable capability. Entrepreneurship: Theory and Practice, 30, 731-746. https://doi.org/10.1111/j.1540-6520.2006.00147.x

Lee, J. (2006). Family firm performance: Further evidence. Family Business Review, 19(2), 89-174. https://doi.org/10.1111/j.1741-6248.2006.00060.x

Lee, P., & O’Neill, H. (2003). Ownership structures and R&D investments of U.S. and Japanese firms: Agency and stewardship perspectives. Academy of Management Journal, 46, 212-225. http://www.jstor.org/stable/30040615

Lumpkin, G.T., & Brigham, K.H. (2011). Long-term orientation and intertemporal choice in family firms. Entrepreneurship Theory and Practice, 35(6), 1149–1169. https://doi.org/10.1111/j.1540-6520.2011.00495.x

Mahto, R.V., Ahluwalia, S., Khanin, D., & Walsh, S.T. (2018). Financial performance enhancing strategies: Small family firms vs. small non-family firms. Journal of Small Business Strategy, 28(3), 18-30. Obtained from: https://libjournals.mtsu.edu/index.php/jsbs/article/view/1007

Marlow, S., & Mcadam, M. (2012). Analyzing the influence of gender upon high-technology venturing within the context of business incubation. Entrepreneurship Theory and Practice, 36, 655-676. https://doi.org/10.1111/j.1540-6520.2010.00431.x

Martikainen, M., Nikkinen, J., & Vähämaa, S. (2009). Production functions and productivity of family firms: evidence from the S&P 500. The Quarterly Review of Economics and Finance, 49(2), 295–307. https://doi.org/10.1016/j.qref.2007.11.001

Maury, B. (2006). Family ownership and firm performance: empirical evidence from Western European corporations. Journal of Corporate Finance, 12(2), 321-341. https://doi.org/10.1016/j.jcorpfin.2005.02.002

Miller, D., & Le Breton-Miller, I. (2005). Managing for the long run: Lessons in competitive advantage from great family businesses. Boston, Massachusets, EE.UU.: Harvard Business School Press.

Miller, D., & Le Breton-Miller, I. (2006). Family governance and firm performance: Agency, stewardship and capabilities. Family Business Review, 19(1), 73-87. https://doi.org/10.1111/j.1741-6248.2006.00063.x

Miller, D., Le Breton-Miller, I., & Lester, R.H. (2013). Family firm governance, strategic conformity, and performance: Institutional vs. strategic perspectives. Organization Science, 24(1), 189–209. https://www.jstor.org/stable/23362107

Montemerlo, D., & Profeta, P. (2009). La gender diversity nelle aziende familiari italiane. Una risorsa da valorizzare. Economia e Management, 6, 314-328. https://iris.unibocconi.it/handle/11565/3714416

Pérez-González, F. (2006). Inherited control and firm performance. The American Economic Review, 96(5), 1559-1588. https://www.jstor.org/stable/30034985

Schmid, T., Achleitner, A.K., Ampenberger, M., & Kaserer, C. (2014). Family firms and R&D behavior -New evidence from a large-scale survey. Research Policy, 43(1), 233-244. https://doi.org/10.1016/j.respol.2013.08.006

Sciascia, S., Nordqvist, M., Mazzola, P., & De Massis, A. (2015). Family ownership and R&D intensity in small and medium-sized firms. Journal of Product Innovation Management, 32, 349–360. https://doi.org/10.1111/jpim.12204

Shumway, T. (2001). Forecasting bankruptcy more accurately: A simple hazard model. The Journal of Business, 74(1), 101-124. https://doi.org/10.1086/209665

Sirmon, D.G., & Hitt, M.A. (2003). Managing resources: Linking unique resources, management, and wealth creation in family firms. Entrepreneurship Theory and Practice, 27, 339-358. https://doi.org/10.1111/1540-8520.t01-1-00013

Su, W., & Lee, C. (2013). Effects of corporate governance on risk taking in Taiwanese family. Asia Pacific Journal of Management, 30(3), 809-828. https://doi.org/10.1007/s10490-012-9292-x

Thomsen, S., & Pedersen, T. (2000). Ownership structure and economic performance in the largest European companies. Strategic Management Journal, 21, 689-705. https://doi.org/10.1002/(SICI)1097-0266(200006)21:6<689::AID-SMJ115>3.0.CO;2-Y

Torchia, M., Calabrò, A., & Huse, M. (2011). Women directors on corporate boards: from tokenism to critical mass. Journal of Business Ethics, 102(2), 299–317. https://doi.org/10.1007/s10551-011-0815-z

Transparency International (2020). CPI 2020. Transparency International. The global coalition against corruption. Obtained from: https://www.transparency.org/en/news/cpi-2020-americas

Tsao, S. M., Chang, Y. W., & Koh, K. (2019). Founding family ownership and myopic R&D investment behavior. Journal of Accounting, Auditing & Finance, 34(3), 361-384. https://doi.org/10.1177/0148558X17704084

Tsao, S. M., Lin, C. H., & Chen, V.Y. (2015). Family ownership as a moderator between R&D investments and CEO compensation. Journal of Business Research, 68(3), 599-606. https://doi.org/10.1016/j.jbusres.2014.09.001

Uhlaner, L., Wright, M., & Huse, M. (2007). Private firms and corporate governance: An integrated economic and management perspective. Small Business Economics, 29, 225-241. https://doi.org/10.1007/s11187-006-9032-z

Upadhyay, A., & Sriram, R. (2011). Board size, corporate information environment and cost of capital. Journal of Business Finance & Accounting, 38(9), 1238-1261. https://doi.org/10.1111/j.1468-5957.2011.02260.x

Van Essen, M., Van Oosterhout, J.H., & Thomsen, M. (2012). Corporate boards and the performance of Asian firms: a meta-analysis. Asia Pacific Journal of Management, 29(4), 873–905. https://doi.org/10.1007/s10490-011-9269-1

Vassolo, R. S., De Castro, J. O., & Gómez-Mejía, L. R. (2011). Managing in Latin America: Common issues and a research agenda. Academy of Management Perspectives, 25(4), 22–36. https://doi.org/10.5465/amp.2011.0129

Vazquez, P. (2017). Socioemotional wealth and corporate social performance: Do family firms employ larger workforces? Academy of Management Proceedings, 2017(1), 11620. https://doi.org/10.5465/AMBPP.2017.11620abstract

Watkins-Fassler, K. (2018). Financial performance in Mexican family vs. non-family firms. Contaduría y Administración, 63(2), 1-18. https://doi.org/10.22201/fca.24488410e.2018.1214

Wu, S., Levitas, E., & Priem, R. (2005). CEO tenure and company invention under differing levels of technological dynamism. Academy of Management Journal, 48(5), 859-873. https://www.jstor.org/stable/20159702

Yoo, T., & Rhee, M. (2012). Agency theory and the context for R&D investment: Evidence from Korea. Asian Business & Management, 12(2), 227-252. https://doi.org/10.1057/abm.2013.2

Zahra, S.A., Neubaum, D.O., Huse, M. (2000). Entrepreneurship in medium-size companies: exploring the effects of ownership and governance systems. Journal of Management, 26(5), 947–976. https://doi.org/10.1177/01492063000260050

Zona, F., Minichilli, A., Zattoni, A. (2008). Boards of directors and firm innovation: an empirical analysis on large Italian companies. In: Huse, M. (Ed.). The value creating board: Corporate Governance and Organizational Behavior, Matter and Selection. Canada, 495–504.