Inherited challenges: How second-generation involvement hinders green innovation in family firms

Drawing on a sample of Chinese family firms covering 10182 firm-years from 2007 to 2019, we examine the impact of second-generation involvement (succession) on green innovation in family firms. Our findings suggest that second-generation succession adversely affects green innovation. Mechanism analyses demonstrate that second-generation involvement reduces green innovation by restricting access to bank loans, reducing government subsidies, and lowering corporate risk-taking. Cross-sectional analyses show that the detrimental effect of succession on green innovation is amplified when a successor attains a lower level of education or possesses a weaker background in research and development. Furthermore, the adverse impact is more pronounced in firms with lower institutional ownership or state shareholding. Overall, we provide substantial evidence that second-generation succession in family firms is one specific factor, among many, that adversely impacts firms’ green innovation. Finally, we discuss policy implications for these findings. • This paper examines the impact of second-generation involvement (succession) on green innovation in family firms. • Second-generation succession adversely affects green innovation. • Changes in bank loans, government subsidies, and corporate risk-taking mediate the impact of second-generation involvement on green innovation. • The detrimental effect of succession on green innovation is amplified when a successor attains a lower level of education, or possesses a weaker background in research and development. • The adverse impact is more pronounced in firms with lower institutional ownership or state shareholding.