Dr. Jian Bing You worked as assistant manager in Hangzhou Boiler Works from August of 1994 to July 2000 after graduating from Tongji University, and from August 2000 to the present, he has been managing director of Taylor Studwelding System (Shanghai) Co., Ltd. His research focus has been on management of the company, research and development, and the application of studwelding technology in China and other Asian countries to allow it to become a leading supplier of studwelding equipment in the area. In 2005, he was awarded an MBA from Webster University.
Purpose: It is a important theoretical and practical issue that how family businesss links to the firm innovation investment. As a dominant governance form of private firms in China, family businesss normally approches unique non-economic goal, which has special impact on the firm behaviors. Under the circumstance of aggravated global competition and deepened market-oriented transformation, Chinese private firms are confronted with severe challenges of transformation and upgrading, and improving firm’s innovation investment and engaging in the innovative and sustainable development has been the main solutions to cope with this challenge,but scholars pay limited attention to the relationship between family businesss and innovation investment and hold different and contradicatory pinions. Innovation investment is the most important factor that affects the innovation capability of firms, this study analyzes the relationship between family control and enterprise R & D behavior to examine the effect of family control on firm's innovation capability. To understand the relationship between family control and innovation investment under transitional economy, it’s essential to solve three fundamental theoretical issues: firstly, whether family businesss are more likely to engage in the innovation investment; secondly, how does the family ownership impact the innovation investment; thirdly, what is the situational conditions of family business influenced on innovation investment.Design/methodology/approach: This study, based on the three major authoritative prototyping databases from 2007 to 2012, namely CSMAR, CCER and WIND, dummy variable is acting on behalf of family control, family shareholding ratio used to measure family involvement, R&D investment used to measure firm innovation investment, the discrepancies between actual performance and median value of industry performance to measure industry gap, gap between earnings per share forcasted by securities analyst and actual earnings per share of the firm used to measure analyst’s forcast gap, and the statistical method with panel regression applied to examine theoretical expectation of this study.Findings: Firstly, despite there is not significant relationship on innovation investment between family businesss and non-familybusinesss, family businesss may invest less in R & D under a larger industry performance gap. Secondly, there is a inverted U-shaped relationship between family involvement and innovation investment, i.e. too much or too little control of company ownership by family members is adverse to firm innovation investment. Thirdly, the inverted U-shaped relationship between family involvement and innovation investment is moderated by industry performance gap. In other words, the inverted U-shaped relationship between family involvement and innovation investment is weaker under a larger industry performance gap.Research limitations/implications: First of all, the second-hand data can not disclose all dimensions of family control, for which more subsequent research is required to fully dispose each dimension and their relationship. Secondly, this study mainly adopts the method of proxy indicator. For the future research, special attention will be paid to social investigation to direct measure innovation investment, which can reveal the discrepancy on innovation investment directly. Thirdly, the market competition exists not only in listed companies, but also in non-listed companies. This study doesn’t cover the market competition in non-listed companies. Fourthly, when firm performance fails to meet the aspiration, whether the entrepreneur tries to change in other ways, or use social relationship and governmental relationship acquiring resources and further stabilizing the firm development is not covered in this study.Practical implications: This study presents relevant management measures in R&D investment policies issued by the government and governanc