A study of the relationship among family business, CEO overconfidence and corporate innovation
Authors: Li Chang, Yi-Pei Chen, Chi-Ping Hou, Tsui-Jung Lin, I-Zhe Lee
Journal: Chia Da Management Review. Jun. 2013, 33(1): 105-140.
Keywords: Family business; CEO overconfidence; Corporate innovation, Moderating effect
Abstract:
This study examines the relationship among family business, CEO overconfidence and corporate innovation based
on analysis of a sample (4,504) of listed electronic firms (692) in Taiwan from 2001 to 2007. The results show
that family businesses are less likely than non-family businesses to engage in corporate innovation. The risk
aversion and lack of resources that characterize family businesses can lead to weak corporate innovation. In
addition, we find that overconfident CEOs prefer innovation activities. It is suggested that overestimation of
returns and underestimation of risk due to CEO overconfidence leads to investment in risky innovation
activities in order to meet optimistic expectations. Finally, investigation shows that when an overconfident
CEO is employed in a family business, his/her overconfidence will have a positive moderating effect that
enhances corporate innovation, especially in the firms with relatively little deviations from control rights
and ownership. Furthermore, a family member serving as CEO with overconfidence in a family business will
strengthen the positive moderating effect of managerial overconfidence on innovation activities.