Family Influence, Advertising, and R&D: Implications for Firm Performance

The literature on family firm performance has failed to conclusively link the impact of family influence on the financial market performance of public firms. The goal of this research is to address this gap by considering mechanisms through which founding family influence contributes to superior firm performance relative to non-family firms. This study links family influence in publicly-traded firms with firm performance in terms of both accounting (Return on Assets) and financial market (Buy-and-Hold-Abnormal-Returns) metrics. The findings support the argument that increased advertising and R&D focus in family influenced firms reflects a long-term oriented management strategy, consistent with decreased agency costs. Using a large cross-sectional-time-series sample of publicly traded firms for the period between 2001 and 2010 from 65 different industries, the findings in this article suggest that investments in advertising and R&D projects have better performance implications in family-owned vs. non-family owned firms. The results are robust to alternative models, measures of firm performance, industry, firm, and time effects.