CEO Succession and Patenting in Family Firms

Much research has examined whether family firms led by family or professional CEOs differ in terms of financial performance. Yet, whether family CEOs promote or hinder innovation remains an open question. Given the importance of innovation as well as the ubiquity of family enterprises, this is a major gap. In this study, we focus on a large sample of Danish firms and examine the patenting performance (in terms of patent counts and citations) of these firms. We exploit the gender of departing CEOs’ first-born children to yield exogenous variations in the decision to appoint a family or professional CEO. Our difference-in-differences results indicate that appointing a family CEO leads to an increase in patent counts and citations relative to appointing a professional CEO. These effects are driven by incoming family CEOs who hold a university degree in engineering and, to a lesser extent, business. Appointing a family CEO also leads to fewer job terminations, which suggests that the increase in patenting might stem from higher job stability and tolerance for failure among employees. Our study has implications for the growing literature on the management of family firms and, more broadly, for strategy research on CEO succession.