Variations in R&D Investments of Family and Nonfamily Firms: Behavioral Agency and Myopic Loss Aversion Perspectives

The behavioral agency model suggests that to preserve socioemotional wealth, loss-averse family firms usually invest less in R&D than nonfamily firms. However, behavioral agency model predictions are inconsistent with the well-accepted premise that family firms have a long-term investment orientation. We reconcile these seemingly incompatible predictions by adding insights from the myopic loss aversion framework, which deals with the impact of decision-making time horizons. The combination of these two prospect theory derivatives led us to hypothesize that family firms usually invest less in R&D than nonfamily firms but the variability of their investments will be greater owing to differences in the…