Manuscript Type:Empirical

Research Question/Issue:This study examines the direct effect of family ownership on innovation in emerging markets byusing data from Indian family-controlled publicly listed firms as its sample. In particular, we study (1) the direct effects offamily ownership on innovation and (2) the influences of business group affiliation on these family firms.

Research Findings/Insights:Using an unbalanced panel of 395 Bombay Stock Exchange (BSE) listed Indian firms during theyears 2001 and 2008, we found that the impact of family ownership on innovation productivity is positive (after controllingfor possible endogeneity). We further emphasized the business group affiliation of family firms and distinguished betweenthe innovation activities of group-affiliated and stand-alone family firms. We found that affiliating with top 50 businessgroups increases the innovation activities of these family firms.

Theoretical/Academic Implications:Theoretically, we complement agency theory by incorporating both the institutionalperspective and the external resourcing perspective to provide a more robust framework for examining the impact of familyownership on innovation in emerging markets. Methodologically, we adopted a more rigorous econometrics method byproviding a panel analysis that used a system GMM estimator and addressed the endogeneity issue thoroughly, whichrepresented a significant improvement over the shortcomings of the methodologies found in the existing literature.

Practitioner/Policy Implications:Our findings suggest that the Indian government should provide support for affiliatingfamily firms with business groups while improving policies on information disclosures; it should also establish a propercorporate governance mechanism for private and public family business. The findings further suggest that a corporategovernance code should encourage family firms to have an independent professional CEO.