Transgenerational Succession and R&D Investment: A Myopic Loss Aversion Perspective

Abstract

A transgenerational leadership transition is one of the most critical events in the life cycle of family firms. Drawing upon the myopic loss aversion (MLA) perspective, we argue that outgoing leaders and other company stakeholders tend to closely watch the later-generation successors immediately after a transgenerational succession, and thus the successors will focus on short-term developments and invest less in R&D activities. Employing the difference-in-differences approach, we find empirical support for our argument that transgenerational succession decreases R&D intensity. The negative effect of transgenerational succession is more pronounced when the later-generation successors suffer from a higher level of MLA.