Can Later-Born Family CEOs Enhance Innovation? The Contingent Effect of Family Business Legitimacy

Prior research shows that family businesses with the later-born heirs as CEOs exhibit better innovation and performance. This is because breaking primogeniture allows a larger talent pool, and later-born children tend to be more unconventional, creative, and rebellious due to their early-life family experience. However, breaking with primogeniture practices incurs costs if institutional contexts are disapproving. Building on the literature of informal institutions and birth order within families, we argue that later-born family CEOs, ranked lower in the family hierarchy, may have less legitimacy and face more constraints than their earlier-born counterparts in institutional contexts approve of family businesses–where business activities are more embedded in kinship relationships, social order systems support informal hierarchies, and national values align with familial values. Using a unique dataset of 1,306 entrepreneurial families from 27 countries/economies, we find that the positive relationship between later-born family CEOs and firm innovation performance is weakened in countries characterized by high family business legitimacy. Our evidence underlines the importance of considering national informal institutions when making intra-family succession decisions.