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Family ownership: does it matter for funding and success of corporate innovations?


Using the Mannheim innovation panel, we investigate whether family firms have higher financial need and how this affects both innovation input and innovation outcomes such as firm or market novelties, or process innovation. Applying the CDM framework, we find that family firms are more likely to have a latent financial need for innovation, which means that they have innovation ideas which they have not implemented yet. We find that family firms have a significantly lower marginal innovation productivity in particular for innovations with radical character, i.e., market novelties. We conclude from this evidence that family firms have a comparative disadvantage in innovation projects that imply high risk and require high innovation capability.

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Fig. 1


  1. According to Gottschalk et al. (2014), over 99 % of FB have less than 250 employees.

  2. See also the overview of Nanda and Kerr (2015).

  3. For an overview of state-of-the-art dynamic approaches of R&D and innovation modeling, see Peters et al. (2016). As information on financial need and family ownership is only available for year 2006, we cannot apply a dynamic panel model in this context.

  4. The variables InnoNovel and InnoFirm are fractions and thus censored with a lower-bound value of 0.

  5. The disadvantage of value added is that this information is less frequently available for firms in comparison to sales.

  6. We employ David Roodman’s CMP (conditional mixed processes) procedure implemented in STATA for the estimations (Roodman 2009; 2014). The method has the advantage of allowing for mixed processes; that is, it permits different types of dependent variables in the system (binary, censored, interval, and continuous variables). It also allows parameters to be fixed or random, and it does not exclude missing values listwise, but conditions on each available observation and estimates simultaneous equation systems using maximum likelihood (ML). For an alternative estimation approach, see Baum et al. (2015).

  7. Again, as mentioned above, in a recursive system of equations, the estimations can be based on observed values of right-hand side endogenous variables, not on instrumented ones.

  8. Note that the explanation for this change of significance is that predicted fn is more strongly correlated with the other explanatory variables and therefore becomes less significant when instrumented.

  9. Again, the results are available from the authors upon request.


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Correspondence to Andreas Stephan.

Additional information

We are especially grateful to an anonymous reviewer for his comments which improved the paper considerably. We also thank seminar participants at the Centre for Family Enterprise and Ownership (CeFEO) at Jönköping International Business School, and participants of the 8th Economics of Innovation and Patents Conference at the Centre for European Economic Research (ZEW) for helpful comments and suggestions. Particular thanks go to Sandra Gottschalk and Joel Stiebale. All remaining errors are our own.



1.1 Figure

First question: the firm with high marginal external funding costs (MCC) (high interest rate for loan) takes option B in the first question. The firm with low MCC (low interest rate for loan) does the same because the cost of offered additional internal funds (ICK) are lower than the firm’s interest rate for an external loan. Second question: the firm with high MCC (high interest rate for loan) selects option B also in the second question since the interest rate for the cheap loan offer is lower then the high interest rate for taking an external loan. In contrast, the firm with low MCC (low interest rate for loan) does not select option B in the second question since the interest rate for the cheap loan offer is higher then the own (very) low interest rate for an external loan. This firm has a funding gap of zero and, therefore, zero financial need for the additional cheap loan offered in question 2. Accordingly, this firm with the low MCC has lower financial need (f n=1) than the firm with the high MCC (f n=2). Note that the result, the firm with low MCC (low interest rate for loan) has zero funding gap with respect to question 2 is independent of whether this firm has lower or higher own funds (lower or higher innovation capabilities D, lower or higher internal cost of capital I C K i ).


2.1 Estimation results

Table 11 CMP estimation of recursive system
Table 12 Average marginal effects for equation (1)

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Schäfer, D., Stephan, A. & Mosquera, J.S. Family ownership: does it matter for funding and success of corporate innovations?. Small Bus Econ 48, 931–951 (2017).

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  • Innovation capability
  • Funding gaps
  • Financing restrictions
  • Family firms
  • CDM

JEL Classifications

  • D21
  • D22
  • G31
  • O30
  • O31
  • O32
  • L26