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Innovation as a mixed gamble in family firms: the moderating effect of inter-organizational cooperation

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Abstract

Despite scholarly attention on family firm innovation, sources of heterogeneity in family firm innovation remain veiled. Drawing upon the mixed gamble perspective, this study introduces and examines a contingency that affects the level of family-owned firms’ innovativeness: inter-organizational cooperation. Based on the idea that inter-organizational cooperation affects family-owned firms’ mixed gamble on innovation, we hypothesize that inter-organizational cooperation mitigates the negative relationship between family ownership and firm’s innovativeness and that the moderating effect varies contingent on the types of cooperative partner and activity. The hypotheses are examined in a sample of 1211 small and medium enterprises in South Korea. The results offer insight into variation in family firm innovation. Our results show that inter-organizational cooperation, especially with non-commercial organizations, is associated with higher levels of innovation. Findings support the idea that family business owners cooperate with external partners as a way to mitigate potential SEW losses often associated with strategic risk. By using a sample of Korean SMEs, we respond to calls in family business research to examine contexts beyond Western countries. Additional contributions, limitations, and future research directions are also discussed.

Plain English Summary

How can family firms be on the cutting edge of research and development? Research shows partnering with outside organizations is key to family firm innovation. Our study looks at innovation in South Korean small- and medium-sized family businesses. Innovation helps firms grow and survive, and past research has highlighted the family firm innovation dilemma. Although family firms may be better equipped to pursue innovation, they may be less willing to innovate than their non-family counterparts, subsequently hurting their long-term survival. Our study finds that partnering with noncommercial organizations (i.e., universities, government, etc.) is connected to higher levels of innovation. Partnerships with external organizations lead to successful innovation outcomes for family firms. Policy makers interested in facilitating innovation may incentivize or provide mechanisms that encourage these partnerships to ensure economic growth and long-term survival of family firms.

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Notes

  1. According to the BAM, a reference point of the dominant principal of the firm is a critical factor that determines behaviors of the firm. Thus, the SEW centered reference point of family firms can explain the distinctive behaviors of family firms, such as accepting financial risks if this is needed to prevent the loss of SEW (Gomez-Mejía et al., 2007).

  2. Uncertainty avoidance “expresses the degree to which the members of a society feel uncomfortable with uncertainty and ambiguity” (directly cited from Hofstede insights, 2020).

  3. B2N alliances refers to business-NGO alliances.

  4. B2B alliances refers to business-business alliances.

  5. Please refer to the website of Korea Ministry of SMEs and Startups (https://www.mss.go.kr/site/eng/main.do) if more detailed information about this survey data is needed.

  6. Lone founder firms are “defined as those in which an individual is one of the company’s founders with no other family members involved and is also an insider (officer or director) or a large owner (5% or more of the firm's equity)” (Miller et al., 2007: 837).

  7. FO: Family Ownership; IOC: Inter-Organizational Cooperation; CCO: Cooperation with Commercial Organization; CNCO: Cooperation with Non-Commercial Organization; CRA: Cooperation for Research Activity; CNRA: Cooperation for Non-Research Activity.

  8. One of the few exceptions is the study of Fang, Memili, Chrisman, and Tang (2021a, b) that examined the relationship between internationalization and R&D investment and the moderating effect of family involvement.

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Authors and Affiliations

  1. David & Sharon Turrentine School of Management, College of Business and Social Sciences, University of Louisiana Monroe, 700 University Avenue, Monroe, LA, 71209, USA

    Taewoo Kim

  2. College of Business, Mississippi State University, PO Box 9581, Mississippi State, MS, 39762, USA

    Jennifer C. Sexton & Laura E. Marler

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  1. Taewoo Kim
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  2. Jennifer C. Sexton
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  3. Laura E. Marler
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Kim, T., Sexton, J.C. & Marler, L.E. Innovation as a mixed gamble in family firms: the moderating effect of inter-organizational cooperation. Small Bus Econ 60, 1389–1408 (2023). https://doi.org/10.1007/s11187-022-00668-9

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