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Risk abatement as a strategy for R&D investments in family firms

Authors

  • Pankaj C. Patel,

    Corresponding author
    1. Department of Marketing and Management, Miller College of Business, Ball State University, Muncie, Indiana, U.S.A.
    • Correspondence: Pankaj C. Patel, Department of Marketing and Management, Miller College of Business, Ball State University, 2000 W. University Avenue, Muncie, IN 47306, U.S.A. E-mail: pcpatel@bsu.edu

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  • James J. Chrisman

    1. Department of Management & Information Systems, Mississippi State University, Mississippi State, Mississippi, U.S.A.
    2. Centre for Entrepreneurship and Family Enterprise, University of Alberta, Edmonton, Alberta, Canada.
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Abstract

The behavioral agency model suggests family firms invest less in R&D than nonfamily firms to protect their socioemotional wealth. Studies support this contention but do not explain how family firms make R&D investments. We hypothesize that when performance exceeds aspirations, family firms manage socioemotional and economic objectives by making exploitative R&D investments that lead to more reliable and less risky sales levels. However, performance below aspirations leads to exploratory R&D investments that result in potentially higher but less reliable sales levels. Using a risk abatement model, our analyses of 847 firms over 10 years supports our hypotheses. Copyright © 2013 John Wiley & Sons, Ltd.

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