R&D Investments in Family and Founder Firms: An Agency Perspective

Abstract

Investments in R&D can influence a firm’s ability to develop new products and to create and adopt innovative technologies that may enhance productivity. However, due to uncertainty regarding the outcome, investments in R&D may lead to an agency problem between the owners and the managers of a firm. Family and founder firms are often considered to be different in their agency situation than other firms, which may have an influence on R&D investments. This paper analyzes R&D spending in family and founder firms versus other firms. The results show that while family ownership decreases the level of R&D intensity, ownership by lone founders has a positive effect not only on R&D intensity but also on the level of R&D productivity. The paper contributes to the understanding of the role of entrepreneurship in making high risk/high return R&D decisions.

Keywords: Family Firms, Lone Founder Firms, R&D Spending, Entrepreneurial Orientation, Agency Theory, Family Altruism

JEL Classification: C11, D21, G31, G32, L20, M31, O32