CEO Managerial Ability and Innovation in Family Firms: A Human Capital Theory Perspective

This study uses human capital theory to investigate the influence of CEO specialized managerial ability on innovation input in family firms. Based on a dataset of 56 publicly traded family firms and 292 firm-year observations from 2015 to 2020, the authors construct Specialized Ability Index (SAI) to quantify CEOs’ firm-specific expertise. Our findings show a positive relationship between CEO specialized managerial ability and family firm’s R&D expenses, supporting the critical role of expertise and nuanced industry understanding for promoting innovation. However, this effect diminishes when the firm is led by a family CEO or has more family board members. Thus, the results of the study find the evidence to confirm that family firms prioritize preserving their legacy over undertaking risky innovation. The study contributes to the literature on family business leadership by integrating the concept of CEO’s specialized managerial ability and exploring links among managerial ability, innovation, and family governance.