Contact Hitters or Power Hitters? R&D of Family Firms in the Japanese Pharmaceutical Industry

Previous studies' finding of the lower R&D investment of family firms raises the question of how such firms can survive in research-intensive environments. Our analysis of Japanese pharmaceutical firms indicates that family firms are not inactive in R&D, but simply pursue a different R&D strategy to non-family firms. We find that family firms have a more negatively skewed frequency distribution of patent values than non-family firms, suggesting that family firms allocate more R&D resources to develop technology that leads to low quality patents with a high probability of success. It is because they are more averse to risk for fear of the loss of socio-emotional wealth, while non-family firms influenced by external investors overemphasizing unlikely extreme outcomes, prefer risky projects. In this respect, it is as if family firms behave as "contact hitter" trying to hit as many singles as possible.