Working Paper: CEPR ID: DP10445
Authors: Pohsuan Hsu; Sterling Huang; Massimo Massa; Hong Zhang
Abstract: According to conventional wisdom, family ownership, which signals a lack of social capital and trust in an economy, may impede innovation. This argument, however, fails to recognize that modern family firms can benefit from capitalist institutions that promote innovation. Using a comprehensive sample of U.S. family-owned public firms and patents for the period from 1998 to 2010, we show that family ownership plays multiple roles in promoting innovation and its influence can be attributed to reduced financial constraints, a greater commitment to long-term value, and improved corporate governance. Causality is confirmed through an instrumental variable analysis, a difference-in-difference analysis based on an exogenous regulatory shock and a matched sample analysis.
Keywords: family firms; innovation; intangible investment
JEL Codes: G32; O32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Family Ownership (J54) | Quantity of Patents (O34) |
| Family Ownership (J54) | Quality of Patents (L15) |
| Family Ownership (J54) | Innovation Output (O36) |
| Family Ownership (J54) | Efficiency in Innovation Outputs (O36) |
| Divorce Rate (J12) | Family Ownership (J54) |
| Crime Rate (K42) | Family Ownership (J54) |
| Family Ownership (J54) | Financial Constraints (D20) |
| Family Ownership (J54) | Long-term Commitment (D15) |
| Family Ownership (J54) | Corporate Governance (G38) |
| Economic Growth and Tax Relief Reconciliation Act of 2001 (O00) | Family Firm Growth (L25) |
| Family Firm Growth (L25) | Innovation Incentives (O31) |