Are family firms really reluctant to innovate? Evidence from IPOs

Abstract

PurposeThe aim of this paper is to explore the family firms' propensity to undertake R&D investments after going public, showing how it varies due to the ownership structure.Design/methodology/approachThe analysis is based on a sample of 132 French and Italian family and nonfamily IPOs in the period 2013–2018.FindingsThe empirical findings show a positive relationship between the quantity of post-IPO shares retained by family owners and R&D investments. Furthermore, the abovementioned relationship is negatively affected by the generational stage and positively by the presence of a lone founder.Practical implicationsOutside investors of family firms may be assured in buying shares of founding family firms after going public because they are stimulated to undertake R&D investments and therefore create overall value in the long term. Furthermore, external managers of lone-founder and first-generation family firms can adopt innovation investments without fear of being replaced as a consequence of a hostile takeover. Lastly, private equity should support later generation family IPOs, providing them with capital and managerial skills in order to generate value for shareholders.Originality/valuePast studies have mostly shown family firms' reluctance to undertake R&D investments; however, scholars have focused on private or public family firms, ruling out the analysis of family firms' innovation behaviour within the setting of an IPO. To the best of the author's knowledge, this study represents the first empirical attempt to investigate the relationship between family firms and post-IPO innovation investments, when the capital infusion relaxes the financial constraints of family firms.