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The purpose of this paper is to examine the impact of Chinese listed family firms on lean innovation strategies. Additionally, the authors also examined the moderating role of CEO compensation on the family ownership and lean innovation strategies relationship.

Data is obtained from CSMAR database about Chinese family firms listed at Shenzhen Stock Exchange and Shanghai Stock Exchange. Panel data comprising of firm year observations from 2007 to 2016 is analyzed using STATA.

Family firms are proactive towards research and development investment (innovation input) as well as towards patent applications (innovation output). Moreover, family firms show propensity towards patent applications and towards converting their R&D investment into granted patent applications. CEO compensation negatively moderates the nexus between family firms and lean innovation which seriously needs to be addressed to reduce agency costs.

The study has focused on Chinese market only. The study is useful for policy makers to address the serious concerns identified in the conclusion section, i.e. effectiveness of CEO compensation in addressing the lean innovation strategies in emerging economy like that of China.

Given the usually considered conservative approach of family firms towards innovation, this is the first study which has tested the moderating role of CEO compensation on family firms and lean innovation relationship in an emerging economy. This study is unique because it provides a detailed analysis of lean innovation process by splitting the process into different stages. The negative moderating impact of CEO compensation raises new concerns to resolve agency conflicts.

The purpose of this study is to investigate the empirical relationship between family firms and lean innovation (i.e. generating more output with less input) as well as the moderating role of the executive's compensation.

Panel data for ten years (2007–2016) have been collected from the CSMAR database. This study concludes the findings using descriptive statistics, correlation and panel data analysis techniques applying statistical software STATA.

Results show that family firms are not motivated to follow lean innovation strategies until unless the executives are compensated well. We further find that family firms are more likely to pursue a lean innovation strategy, and they demonstrate a superior record of converting R&D inputs as granted patents, and; both input and output innovation are significantly affected by executive compensations. However, this study shows an insignificant negative relationship of propensity to patents with the moderating effects of executive compensation.

This research has been conducted on the emerging Chinese market. The study is useful for policymakers and managers to devise such strategies which can make the role of executive's more effective to reduce the agency cost and reap the benefits of innovation input more effectively (Petersen, 2009). Also, family firms are heterogeneous, and the research outcome may be applicable for both advanced and emerging economies.

The previous family firm's research paid less attention to the role of the executive's compensation on the relationship of family firms and lean innovation. Moreover, they prioritize insight into how executive's compensation affects different proxies of innovation. This study sheds new light on the paradoxical findings of family firms and lean innovation by analyzing the significant role of executive compensation.