When Can Families Fill Voids? Firms’ Reliance on Formal and Informal Institutions in R&D Decisions

Abstract

Firms are more prone to allocate their resources to research and development (R&D) when they are confident about their ability to appropriate the value created through these activities. In this regard, policymakers introduce formal intellectual property rights (IPR) institutions to create an innovation-friendly environment. Less formalized shared values and norms are however likely to affect the extent to which organizations depend on the strength of formal institutions in determining their R&D strategy. Embracing an institution-based perspective on firm-level strategic decision-making, we examine whether the degree to which a firm relies on strong formal IPR institutions in R&D decisions depends on the configuration of informal institutions in its environment, including family and societal culture. We test our hypotheses on a representative sample of privately-held European manufacturing firms and find that the family institution can play an “institutional void filling” role through involvement in ownership and management. This is particularly the case when the firm is embedded in a collectivist culture coherent with the family’s values and norms imbued in the business. Our study offers contributions to the institution-based view, innovation, and family business literatures.

Family Business Growth Around the World

“…Second, whereas the prior studies have demonstrated that the institutional environment matters for the strategies (Brinkerink & Rondi, 2020) and financial performance of family firms (Banalieva et al, 2015; Liu et al, 2010), we demonstrate which national institutions boost family firm growth, showing that firms grow faster in countries with more democracy, government effectiveness, regulatory quality, rule of law, corruption control, and political stability. We also document how the positive moderating effect of the institutional environment varies across different types of family firms and different business cycles.…”

Should we patent it or keep it a secret? The moderating role of proactive orientation in family versus non-family SMEs

“…Second, we consider how proactive orientation can weaken family firm preferences for patenting, relative to secrecy, as a means of value protection and capture. Previous literature has analysed the effect of family involvement, an informal institution, on the relationship between the strength of formal IP rights institutions in a country and the firm's R&D resource allocation decisions (Brinkerink and Rondi, 2020). However, R&D decisions are related to family firm inputs into the innovation process, and not the mechanism they select to protect and capture the IP once it has been developed.…”

“…For example, such a preference may be influenced by whether SMEs are family owned-or-controlled (Howorth et al, 2010). Contemporary work has examined how family involvement, as an informal mechanisms or institution, moderates the relationship between the strength of formal IP in a country and the R&D resource allocation decisions by such firms (Brinkerink and Rondi, 2020). However, R&D decisions are related to SME inputs to the innovation process, and not the mechanism they select to protect the IP once it has been developed.…”

Strength in Stability: A Meta-Analysis of Family Firm Performance Moderated by Institutional Stability and Regime Type

“…These loyal and strong relationships include those between family owners and firm employees (Karra et al, 2006; Sirmon & Hitt, 2003) as well as external stakeholders, such as business partners and government officials (Aldrich & Cliff, 2003; Ge et al, 2019; Soleimanof et al, 2018). Considering the institutional environment, family firms then utilize these strong relationships to overcome institutional weaknesses (Brinkerink & Rondi, 2020; Khanna & Palepu, 2000; Luo & Chung, 2013; Miller et al, 2009).…”

“…On the one hand, family firms are perceived as anchors of economic stability (Anderson & Reeb, 2003a; Astrachan & Shanker, 2003) and are thought to benefit from high institutional quality compared to nonfamily firms (Botero et al, 2015; Carney et al, 2011; La Porta et al, 1999; Wang & Shailer, 2017). On the other hand, family firms have advantages when dealing with weak institutions (Brinkerink & Rondi, 2020; Gilson, 2007; Khanna & Palepu, 2000; Miller et al, 2009) and may be able to exploit these institutional weaknesses through their political connections (Dinh & Calabrò, 2019; Fisman, 2001; Morck & Yeung, 2004; Peng, 2003). Research has found both positive and negative effects of family involvement in emerging markets, given that such markets are generally characterized by institutional weakness (Claessens et al, 2002; Dau et al, 2020; Khanna & Rivkin, 2001; Peng et al, 2018).…”