Are family owned firms (FOFs) more innovative than non-family owned firms (NFOFs)? While research building on the Behavioral Theory of the Firm (BTOF) has shown that innovation depends on the firm’s performance relative to its aspirations (PRA), we theorize that FOFs are likely to respond differently from NFOFs to PRA due to their concern for the socioemotional wealth (SEW) accruing from their actions. Specifically, we theorize that FOFs will respond to the leeway that positive PRA provides by increasing innovation output, but will respond to negative PRA by reducing risk and, therefore, innovation output. However, when faced with bankruptcy, FOFs will actually increase risk and innovation in order to avoid the total loss of SEW that bankruptcy would entail. Using a panel dataset of patent data with 6194 observations for 533 firms for the years 1999-2016 we find robust empirical support for our hypotheses.
