Innovation in Family Firms: An Agency and Resource‐Based Lens on Contingencies of Generation and Management Diversity

Abstract Family firms are increasingly recognized as a heterogeneous group of businesses with specific strengths and weaknesses that make them either superior or inferior to non‐family firms. Recent research has therefore started shifting away from comparisons between family firms and non‐family firms to comparisons between family firms. This study investigates the influence of two key paramete rs of ‘familiness’ – the generation in control and the (non‐family) management diversity – on family firm innovation. While agency‐based arguments stress the liabilities of these two parameters of family influence, resource‐based arguments highlight their benefits. Conflicting effect hypotheses are derived and tested in the context of German family firms. The empirical results imply that family firms’ generational development and higher management diversity influence their innovation positively and that their benefits outweigh their liabilities in the context of German family firms.