Corporate Ownership Structure and Innovation: Evidence from Taiwan's Electronics Industry

Abstract

The agency problem of listed companies in East Asia is closely related to their typically concentrated ownership structures. Tight control creates an entrenchment problem that allows the controlling owners' self-interested behaviors to go unchallenged internally by the boards of directors or externally by takeover markets. The primary objective of this paper is to explore the association between the ownership and control structure and innovation. The ownership and control structure is measured first as the divergence between the ultimate owner's voting rights and the ultimate owner's cash flow rights, and second by the presence of ultimately controlling shareholder's family member as CEO or Chairman of the board, or both. Innovation is measured by patent quantity and patent quality. This paper uses patents granted by the U.S. Patent and Trademark Office (USPTO) to measure innovation activities. We find that innovation is significantly and negatively related to the level of agency problems. We further find that innovation is lower for firms whose controlling owner is also either the chief executive officer or the chair of the board of directors. Our findings appear to be robust with respect to examining patent count and patent quality variables.

Innovation activities during intra-family leadership succession in family firms: An empirical study from a socioemotional wealth perspective

“…These studies have reported contradictory results: Some studies report a positive relationship between family influence and innovation (Gudmundson et al, 2003;Hsu & Chang, 2011;Llach & Nordqvist, 2010) as well as entrepreneurial activities in general (Zahra, 2005;Zahra, Neubaum, & Huse, 2000). Other studies find a negative relationship between family influence and innovation (e.g., Block, 2012;Chen & Hsu, 2009;Chin, Chen, Kleinman, & Lee, 2009;Czarnitzki & Kraft, 2009;Munari, Oriani, & Sobrero, 2010;Muñ oz-Bulló n & Sanchez-Bueno, 2011). The conflicting results might partly be due to the oversimplified measurement of family influence by merely considering potential family influence through ownership and control.…”

“…We currently lack knowledge on how the (family internal) successors' industry-external experience influences the innovation behavior of family firms. It could be very interesting to see if the potential downside of family CEOs for innovation (e.g., Chen & Hsu, 2009;Chin et al, 2009) could be mitigated by industryexternal experience. Following up on this, we suggest an exploration of whether the investigated relationships differ when comparing family and non-family successors as well as when comparing a single successor and succeeding teams (e.g., siblings).…”

Innovation processes in family firms: the relevance of organizational flexibility

“…As Classen et al (2014) point out, these characteristics of innovation may have specific implications for family owned firms (Zellweger 2007;Miller et al 2011) and several studies investigated whether family firms have a higher innovation performance than non-family owned firms. Unfortunately, the results are rather inconclusive, with some studies finding a positive (e.g., Craig and Dibrell 2006;Ayyagari et al 2011), and others a negative relationship between family ownership and innovation performance (e.g., Block et al 2013;Chin et al 2009). Classen et al (2014) show that family SMEs outperform non-family SMEs regarding process innovation outcomes-but not product innovation outcomeswhen controlling for innovation expenditures.…”

Return on capital in Spanish tourism businesses: A comparative analysis of family vs non-family businesses

“…The dynamic of return on total assets at FB has been driven by return on sales, although the advantage in this margin was diluted during the previous decade to the point of disappearing in 2008, suggesting that their market power to translate differentiation into higher prices is low. This contradiction is not surprising considering the typical portrait of FB, revealing the persistence of important competitive disadvantages in key intangible assets for differentiation (Casillas, Moreno, & Barbero, 2011;Cooper, Upton, & Seaman, 2005;Kontinen & Ojala, 2010;Miller, McLeod, & Oh, 2001;Westhead, 1997), related to the lack of intellectual capital, knowledge (Block et al, 2011;Le Breton-Miller, Miller, & Lester, 2011) and innovation (Block, 2012;Chin, Chen, Kleinman, & Lee, 2009;Chrisman & Patel, 2012), and lower search breadth (Classen, Van Gils, Bammens, & Carree, 2012). As pointed out by Comi and Eppler (2014), family businesses lose their competitiveness as family managers are averse to taking entrepreneurial risks, over-exploiting existing competences and preventing the firm developing dynamic capabilities.…”