Second generation involvement and corporate innovation: evidence from China

Abstract

Purpose

The purpose of this paper is to study the effect of second generation involvement on corporate innovation in Chinese family firms.

Design/methodology/approach

Based on the manually collected sample of listed Chinese family firms from 2003 to 2014, the study empirically examines the impact of second generation involvement on corporate innovation. The authors apply a difference-in-differences research design and a Heckman two-stage least squares regression to relieve the endogeneity concerns.

Findings

The research finds a positive relationship between second generation involvement and corporate innovation. This effect is more pronounced among the firms appointing second generation family members with overseas training experience and firms with weak external monitoring. Further analysis shows that the curtailment of related party transactions and the improvement of accounting information quality are important channels.

Practical implications

The findings provide several practical implications for Chinese family firms to survive the succession process and maintain competitive advantages across generations.

Originality/value

First, this study is helpful to understand the strategies adopted by family firms to maintain their long-term competitiveness and pursue continuing growth across generations. Second, the findings are also consistent with the transfer cost hypothesis of Fan et al. (2012) and Bennedsen et al. (2015). Finally, the findings imply that second generation involvement has a substitutive effect for external monitoring mechanisms.

Citation

Huang, H., Lyu, C. and Zhu, X. (2019), "Second generation involvement and corporate innovation: evidence from China", Nankai Business Review International, Vol. 10 No. 4, pp. 526-545. https://doi.org/10.1108/NBRI-03-2019-0008