Although family firms are common around the world, studies on family-controlled business are limited. Prior studies mainly focused on the influences of family ownership on overall firm performance, and the results were mixed. In this study we attempted to explore the impacts of family ownership on innovation by examining the association of family control and stock market reactions to innovation announcements. We found that firms with greater family control experienced significantly more negative stock market reactions to innovation announcements. The results further indicated that divergence of cash flow and voting rights was strongly and negatively correlated with announcementperiod abnormal returns. In addition, the findings suggested a significantly positive moderating effect of institutional ownership. The conclusions were robust under various measures of family control, and remained valid after controlling other influential factors for stock market reactions to innovation announcements.

While prior research has focused on the effect of CEO overconfidence on innovation, few studies have been conducted to reveal how and whether an overconfident CEO affects ambidextrous innovation, which means the simultaneous and balanced pursuit of both exploratory and exploitative innovation. By observing firms’ patenting behavior, we investigate the effect of CEOs’ psychological attribute of overconfidence on innovation ambidexterity. In addition, we examine how a firm’s governance system moderates the relationship between CEO overconfidence and ambidextrous innovation. The results show that overconfident CEOs are more apt to create or magnify an imbalance in innovation ambidexterity. Furthermore, the results regarding the moderating effects of governance and monitoring mechanisms indicate that an independent board and dedicated institutional ownership mitigate the positive relationship between CEO overconfidence and a firm’s ambidextrous imbalance, while transient institutional ownership enhances this relationship. We also find that analyst following does not effectively monitor an overconfident CEO’s tendency toward an ambidextrous imbalance.

Manuscript Type: EmpiricalResearch Question/Issue: Family control involves issues of agency costs and nepotism. This study investigated the impacts of family control on stock market reactions to corporate venturing announcements by public firms. Moreover, in this paper we examined whether the monitoring effect of institutional investors influenced the relationship between family control and stock market reactions. Research Findings/Insights: In terms of research findings/results, with different measures of family control, the evidence indicated that family control is significantly and negatively associated with the abnormal returns of corporate venturing announcements. Furthermore, we found that the divergence of cash flow and voting rights had a strong negative impact on abnormal returns. Finally, the empirical results suggested that institutional ownership had a significant positive moderating effect on the relationship of family control and stock market reactions. Theoretical/Academic Implications: Prior research focused on the influence of private family firms on venturing activities. This study contributes to the literature by highlighting the unique characteristics of family control in public firms. This research suggests that nepotism embedded in public family firms is likely to create agency costs resulting from deviations in cash flow and voting rights. This study further shows that institutional ownership plays an important role in reducing agency costs associated with public family firms. Practitioner/Policy Implications: Our findings suggest that family control is an important consideration for investors in evaluating the wealth impacts of corporate venturing. Therefore, a well-established governance system could be a crucial signal of the quality of corporate venturing for family businesses, particularly the outside governance mechanism.

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