Behavior Towards R&D Investment of Family Firms CEOs: The Role of Psychological Attribute

Abstract

Introduction: This study aims to explore the effects of the behavior of chief executive officers (CEOs) within family firms on investment in research and development (R&D). We also investigate the effect of CEOs' psychological attributes of overconfidence on R&D investment and the moderating effect between the types of CEOs and R&D investment. Methods: We obtained data on Chinese A-share firms from China Stock Exchange and Accounting Research from 2010 to 2018 for analysis. Then, we used the ordinary least squares model for regression results; moreover, the Tobit regression, GMM and firm fixed effect model are applied to check the robustness of the results. Results: Family CEOs with actual control rights are more open to R&D investment, whereas those without actual control rights exhibit negative behavior. The study found that nonfamily CEOs exhibit insignificant results and negative predicted signs toward R&D investment. Moreover, the results show that overconfident CEOs are more inclined to amplify innovation. Furthermore, results on the moderating effects of CEO psychological attribute of overconfidence indicate that the CEO overconfidence mitigates the negative relationship between family CEOs with actual control rights and R&D investment. However, no moderating effect is found between family CEOs without actual control and R&D investment. The CEO psychological attribute behavior is positive between non-family CEOs and R&D investment. Discussion: This novel study explores the behavioral effect of different types of family firm CEOs on R&D investment. This study will assist corporate board members to make more informed decisions about retaining (or bringing back) family CEOs (with or without actual control rights) or hiring non-family CEOs.

Microfoundations in Family Firm Research: A Review and Agenda for Theoretically Driven Future Inquiry

“…However, scholars also used it to examine capital structure decisions (e.g., Frisenna & Rizzotti, 2020; Poletti-Hughes & Martínez Garcia, 2022; Salloum et al, 2012; Stacchini & Degasperi, 2015; Steijvers et al, 2010; Steijvers & Niskanen, 2013; Su et al, 2021; Villalonga et al, 2019; Yusof Ali & Ahmad, 2021), diversification (e.g., Chung et al, 2021; Praet, 2013; Singh & Wyrobek, 2013; Singla et al, 2014; Hernández-Trasobares & Galve-Górriz, 2020; Tsai et al, 2009), CEO/executive compensation (e.g., Boon-Leong & Swee-Sim, 2020; Pagliarussi & Costa, 2017; Sánchez-Marín et al, 2020; Schulze et al, 2003), earnings management (e.g., Setia-Atmaja, et al, 2011; Stockmans et al, 2013; Wan et al, 2014; Yang, 2010), and dividends policy (e.g., Briano-Turrent et al, 2020; Sener & Selcuk, 2019; Setia-Atmaja, 2008; Setia-Atmaja et al, 2009). In addition, agency theory was used in combination with other theoretical perspectives to explain greater firm value (e.g., Pukthuanthong et al, 2013; Rubino et al, 2017; Venusita & Agustia, 2021), family firm innovation (e.g., Lazzarotti & Pellegrini, 2015; Scholes et al, 2021; Steeger & Hoffmann, 2016; Xiaoti, 2018; Zulfiqar et al, 2021), risk-taking behavior (e.g., Huybrechts et al, 2013; Poletti-Hughes & Briano-Turrent, 2019; Su & Lee, 2013; Zahra, 2005), and corporate social responsibility (e.g., Segovia et al, 2020; Yeon et al, 2021; B. Yu et al, 2021).…”

“…The exceptions to this were examinations of self-control and governance (Lubatkin et al, 2005) and agency problems such as moral hazard and adverse selection (Lubatkin, Durand, & Ling, 2007). Other studies employing agency theory in this area included investigations of moral obligation and prosocial behaviors (Pratono & Han, 2021), CEO overconfidence and investment in research and development (Zulfiqar et al, 2021) as well as the impact of incumbents' feelings of loss on their resistance to transferring control to successors (Gundolf et al, 2013).…”

Behavioural Phenomena of Family Firm Control Diversity and R&D Investment with Moderating Role CEO Compensation

“…Chinese family firms have three types of CEOs: CEOs from family who are controllers; CEOs from outside the family who are not controllers; and CEOs from family who are not controllers. 67,68 Family firms choose the CEO type based on qualification and compensation package. 60,69 Family CEOs possess non-financial objectives that may affect willingness for R&D investment.…”

Can the Special Economic Zones Promote the Green Technology Innovation of Enterprises? An Evidence From China

“…In the meantime, the continuous growth of enterprises in SEZs enhances the overall industrial agglomeration of the zone, further strengthening the effect of economies of scale and external economies. In addition, from the perspective of knowledge generation, the SEZ triggers the spatial reconfiguration of production factors, such as human resources, financial resources, and scientific research resources, among which professional labor and financial resources are fundamental elements for enterprises to engage with technological innovation (Sun et al, 2018;Zulfiqar et al, 2020a;Zulfiqar and Hussain, 2020;Zulfiqar et al, 2021). Enterprises in the development area can share production factors associated with R&D innovation activities, such as R&D personnel, R&D infrastructure, and R&D knowledge (Zulfiqar et al, 2020b), which, in turn, stimulate them to engage in green technology innovation (Carlino and Kerr, 2015).…”