Behavioural Psychology of Unique Family Firms Toward R&D Investment in the Digital Era: The Role of Ownership Discrepancy

Abstract

This study examines the R&D investment behaviour of different types of family-controlled firms with the moderating role of ownership discrepancy between cash-flow rights and excess voting rights by using the sufficiency conditions’ theoretical framework of ability and willingness developed by De Massis. It uses data from family firms that have issued A-shares from 2008 to 2018. They used pooled OLS regression for data analysis and Tobit regression for robustness checks. This study classifies family firm types into two categories, namely, the lone-controller family firms (LCFFs) and the multi-controller family firms (MCFFs), with each being further classified as “excess” or “no excess” voting rights. Both LCFFs without excess voting rights and MCFFs with excess voting rights have the “ability” and “willingness” toward R&D investment. LCFFs with excess voting rights and MCFFs without excess voting rights only have the ability but low willingness to invest in R&D. The study also establishes that Chinese family-controlled firms are heterogeneous toward risky investment. To the best of our knowledge, this study is the first to differentiate Chinese family firms by their unique ownership structure characteristics in investigating the effect of the family firm structure on R&D investment. The study is a novel attempt to test the willingness and ability framework of LCFFs and MCFFs. Previous studies based on agency theory have tacitly assumed that ability and willingness exist in family-controlled firms. However, this study challenges this implicit assumption.

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

“…96 Lone controller family firms (LCFF) are more willing to invest in longterm projects and multi-controller family firms (MCFF) show less willingness to invest in the risky projects. 95 Our results show that LCFFs and MCFFs rights intend to protect their socio-emotional wealth and engage in non-economic activities. Family owner (CEO) is more willing to invest in long-term projects.…”

“…13,55,56 May be the lone controller do not have professional qualification. 95 As a result, LCFFs did not invest in high-risk projects due to information asymmetry. This study demonstrates that in LCFFs the controller did not trust other family members and made decisions solely.…”

“…103 Moreover, when the family firm objectives lead to long-term goals, strategic time horizons lengthen and controllers become less risk-averse and increase investment in R&D. 50 Furthermore, the study demonstrates that Chinese familycontrolled businesses are heterogeneous with regard to risky investment. 95 In this situation, controllers set goals that consider next generations.…”

Regional culture: The role of the invisible hand in shaping local family firms’ top management team

“…In this study, the number of employees and firm age are used to control for the impact of firm size on the results ( Zulfiqar et al, 2022 ). The unit of firm age is “year,” and the mean value of 11.575 means that the average age of the family firms in the sample is 11.575 years.…”

Fitting the name or unworthy of the name?—Does the name of family firm major shareholder influence family’s egoistic behavior?

“…Besides the above variables, variables such as employee number and firm age ( De Cesari et al, 2016 ; Zulfiqar et al, 2022 ) are taken into account in order to control for the possible impact of firm size and history on results. Meanwhile, considering that the operating conditions of the firm may interfere with the results, we control variables such as the firm’s asset-liability ratio and return on assets (ROA) ( Miller et al, 2013 ; Qi et al, 2022 ).…”