Dual-class share structures in family firms and the effect on innovation

Sammanfattning: Family firms are much more likely to employ dual-class share structures than other types of firms. This raises the question if previously studied relationships between family firms and various outcome variables such as innovation are true family effects or in fact disguised dual-class effects. In this paper, we examine this question using three measures of innovation; research & development expenditure (R&D), granted patents and mergers and acquisitions spending (M&A). Using a sample of listed firms on the Nasdaq Stockholm exchange 2009-2014, we find that family firms invest less in R&D compared to non-family firms, while there are no significant differences in granted patents or M&A activity between family firms and non-family firms. These findings can not be explained by the increased use of multiple share classes in family firms. We also show that the propensity to patent is larger in family firms and appears to correlate negatively with R&D investments. Finally, we find that investments in R&D increase with the wedge between voting- and cash flow rights held by the controlling family.