Understanding the Innovation Behavior of Family Firms* By Maria Jesus Nieto, Lluis Santamaria, and Zulima Fernandez This paper examines innovation behavior in family firms, analyzing their innovation efforts, sources, and results. Its underlying premise is that innovation behavior depends on the firm’s resource endowment and the level of risk inherent in the decision to innovate, factors that make family involvement an influential characteristic in innovation processes. Using a large sample of Spanish firms, the findings show that family firms perform fewer innovation efforts and are less inclined to turn to external sources of innovation—such as technological collaboration—than nonfamily firms. Finally, family firms are more likely to achieve incremental innovations than radical innovations. Introduction One of the most intriguing paradoxes about family firms centers on their innovative charac- ter. Traditionally, family firms have been viewed as conservative (Sharma, Chrisman, and Chua 1997), resistant to change (Kets de Vries 1993; Ward 1997), and averse to risk (Naldi et al. 2007). This view leads us to expect a negative relation between family involvement and innovation, an expectation that a study by Chen and Hsu (2009) corroborates. And yet family firms should have incentives to innovate as innovation creates wealth and opens new business opportunities. Moreover, the decision to innovate is coherent with the survival instinct and classic concern of family-owned firms for long-term continuity (Sirmon et al. 2008). It should come as no surprise, then, that other studies argue that family ownership and involvement are related to innovation (Craig and Moores 2006; Zahra 2005). Given that the family agenda may indeed influence the strategic decisions of family firms (Miller, Le Breton-Miller, and Lester 2011), it is likely that it will have an impact on all the decisions related to innovation. Moreover, the desire of these firms to protect family wealth and maintain control, along with their inherent conservatism, may determine not only the extent of their innovation efforts but also how they attempt to innovate and the results they achieve. Thus, the question becomes not simply whether family firms innovate more or less than do nonfamily firms, but how they approach the innovation process. In line with this, this study sets out to analyze if the innovation behavior of family *The authors thank the Editor and the two anonymous reviewers for their helpful comments and suggestions. This study has been financially supported by projects ECO2012-36160; ECO2010-22105-C03-03 and CCG10-UC3M/HUM-4760. The usual disclaimer applies. Maria Jesus Nieto is an Associate Professor at the Business Management Division, University Carlos III of Madrid, Spain. Lluis Santamaria is an Associate Professor at the Department of Business Administration, University Carlos III of Madrid, Spain. Zulima Fernandez is a Professor at the Business Management Division, University Carlos III of Madrid, Spain. Adress correspodence to: Maria Jesus Nieto, Organizacion de empresas, Universidad Carlos III de Madrid, c/Madrid, 126, Getafe, Madrid 28903. E-mail: mnieto@emp.uc3m.es. Journal of Small Business Management 2013 ••(••), pp. ••–•• doi: 10.1111/jsbm.12075 NIETO, SANTAMARIA, AND FERNANDEZ 1