Family firms are often portrayed as an important yet conservative form of organization that is reluctant to invest in innovation; however, simultaneously, evidence has shown that family firms are flourishing and in fact constitute many of the world's most innovative firms. Our study contributes to disentangling this puzzling effect. We argue that family firms-owing to the family's high level of control over the firm, wealth concentration, and importance of nonfinancial goals-invest less in innovation but have an increased conversion rate of innovation input into output and, ultimately, a higher innovation output than nonfamily firms. Empirical evidence from a meta-analysis based on 108 primary studies from 42 countries supports our hypotheses. We further argue and empirically show that the observed effects are even stronger when the CEO of the family firm is a later-generation family member. However, when the CEO of the family firm is the firm's founder, innovation input is higher and, contrary to our initial expectations, innovation output is lower than that in other firms. We further show that the family firm-innovation input-output relationships depend on country-level factors; namely, the level of minority shareholder protection and the education level of the workforce in the country.We are grateful for the helpful comments of Linus Dahlander and the anonymous reviewers. Further, we acknowledge the valuable comments of

F amily firms are thought to pursue nonfinancial goals that provide socioemotional wealth, but socioemotional wealth is feasible only with family control of the firm. Using prospect theory, we hypothesize that socioemotional wealth increases with the extent of current control, duration of control, and intentions for transgenerational control, thus adding to the price at which owners would be willing to sell their firms to nonfamily buyers. Findings from two countries show that current control has no impact, and duration of control has a mixed impact. However, intention for transgenerational control has a consistently positive impact on the perceived acceptable selling price.

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We posit that family firms often face a dilemma in their strategic decision making: whether to maintain current socioemotional wealth or pursue prospective financial wealth. Applying such a mixed gamble perspective to acquisitions, family owners assess potential acquisitions with regard to their impact on both wealth dimensions. In line with this reasoning, our results show that family control implies a general reluctance to acquire and, when an acquisition happens, a preference for related targets. Because financial and socioemotional viewpoints lead to largely incompatible predictions about the occurrence and relatedness of acquisitions, family firm owners use their firm’s vulnerability as a signal. Increased vulnerability leads to a heightened propensity to prioritize financial over socioemotional wealth problem framing, which is reflected in the acquisition of unrelated targets. Empirical results are supportive of these predictions.

This paper develops an organizational identity-based rationale for why family firms strive for nonfinancial goals. We show that the visibility of the family in the firm, the transgenerational sustainability intentions of the family, and the capability of the firm for self-enhancement of the family positively influence the importance of identity fit between family and firm as well as the family's concern for corporate reputation. We suggest that the concern for corporate reputation leads the family to pursue nonfinancial goals to the benefit of nonfamily stakeholders. We also discuss reinforcing feedback loops in these processes.