Introduction: This study aims to explore the effects of the behavior of chief executive officers (CEOs) within family firms on investment in research and development (R&D). We also investigate the effect of CEOs’ psychological attributes of overconfidence on R&D investment and the moderating effect between the types of CEOs and R&D investment.
Methods: We obtained data on Chinese A-share firms from China Stock Exchange and Accounting Research from 2010 to 2018 for analysis. Then, we used the ordinary least squares model for regression results; moreover, the Tobit regression, GMM and firm fixed effect model are applied to check the robustness of the results.
Results: Family CEOs with actual control rights are more open to R&D investment, whereas those without actual control rights exhibit negative behavior. The study found that non-family CEOs exhibit insignificant results and negative predicted signs toward R&D investment. Moreover, the results show that overconfident CEOs are more inclined to amplify innovation. Furthermore, results on the moderating effects of CEO psychological attribute of overconfidence indicate that the CEO overconfidence mitigates the negative relationship between family CEOs with actual control rights and R&D investment. However, no moderating effect is found between family CEOs without actual control and R&D investment. The CEO psychological attribute behavior is positive between non-family CEOs and R&D investment.
Discussion: This novel study explores the behavioral effect of different types of family firm CEOs on R&D investment. This study will assist corporate board members to make more informed decisions about retaining (or bringing back) family CEOs (with or without actual control rights) or hiring non-family CEOs.
Keywords: CEOs types, CEO overconfidence, family firms, R&D