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Second generation involvement and corporate innovation: evidence from China

Second generation involvement and corporate innovation: evidence from China The purpose of this paper is to study the effect of second generation involvement on corporate innovation in Chinese family firms.Design/methodology/approachBased 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.FindingsThe 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 implicationsThe findings provide several practical implications for Chinese family firms to survive the succession process and maintain competitive advantages across generations.Originality/valueFirst, 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Nankai Business Review International Emerald Publishing

Second generation involvement and corporate innovation: evidence from China

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
2040-8749
DOI
10.1108/nbri-03-2019-0008
Publisher site
See Article on Publisher Site

Abstract

The purpose of this paper is to study the effect of second generation involvement on corporate innovation in Chinese family firms.Design/methodology/approachBased 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.FindingsThe 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 implicationsThe findings provide several practical implications for Chinese family firms to survive the succession process and maintain competitive advantages across generations.Originality/valueFirst, 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.

Journal

Nankai Business Review InternationalEmerald Publishing

Published: Dec 4, 2019

Keywords: Family firms; Second generation involvement; Corporate innovation; Overseas training experience

References