[We’re pleased to welcome authors Francesco Chirico of Jo¨nko¨ping International Business School and EGADE Business Schoo, Giuseppe Criaco of Rotterdam School of Management, Massimo Bau`of Jo¨nko¨ping International Business School, Lucia Naldi of Jo¨nko¨ping International Business School, Luis R. Gomez-Mejia of W.P. Carey School of Business, and Josip Kotlar of Politecnico di Milano. They recently published an article in Entrepreneurship Theory and Practice entitled “To patent or not to patent: That is the question. Intellectual property protection in family firms,” which is currently free to read for a limited time. Below, they briefly describe the motivation and impact of their research.]
Patents help firms appropriate greater returns from innovation, leading to superior financial returns. However, patenting also entails significant costs, many of which are non-financial in nature. Family firms are a case in point: in these firms, the financial benefits of patenting may come at the expense of socioemotional losses for the family, such as diverting resources from traditional lines of business, disclosing tacit knowledge, increasing reputational risks, or creating dependence on external sources of finance and specialized human capital. Understanding these trade-offs and disentangling family firms’ decision to patent is the main purpose of this study.
We rely on a novel theoretical perspective – the mixed gamble logic – to conceptualize family firms’ patenting decisions as a trade-off between: (1) benefits in terms of gains in prospective financial wealth and (2) costs in terms of losses in the family’s current SEW. This theory suggests that family firms will not necessarily privilege financial or socioemotional wealth considerations; rather, it points to critical factors that are likely to shape the way family firms frame the value of benefits and costs of patenting.
We test these ideas using data about the patenting behavior of 4,198 small- and medium-sized family firms. First, we find that family firms’ propensity to patent changes depending on the level of family ownership: when family ownership raises beyond a threshold level, then current socioemotional wealth is safe and family firms become more likely to pursue the prospective financial gains attainable through patenting. Second, we also show that family firms’ patenting decisions change depending on the environment, as the trade-offs between financial and socioemotional wealth becomes more stringent when the availability of critical external resources is low.
These results elucidate the role of non-financial considerations in family firms’ strategies for capturing value from innovations and reconcile previous conflicting findings. The study also holds several practical implications for family firm owners and managers: it suggests that, in fact, their propensity to patent might be biased by their over-emphasis on socioemotional considerations. But our study also suggests that family firms can successfully reconcile the inherent trade-off between financial and socioemotional wealth by securing a high level of family control through majority family ownership. Thus, while the prior research has encouraged family firms to open up their innovation processes to facilitate value creation, our study rather encourages family owners to acquire or preserve a stronger controlling position in their respective firms to deploy more effective strategies for capturing value from innovations. This recommendation is likely to apply particularly in industries characterized by low environmental munificence.
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