Faultlines in Family SMEs: The U-Shape Effect of Family Control on Innovativeness and Performance

Studies on innovation have yielded contradictory results regarding the influence of family control, giving rise to competing perspectives that either emphasize the stewardship role of family managers or the agency problems that their presence creates. Recent research integrates both perspectives, theorizing an inverted U-shaped relationship between family control and innovativeness. However, scholars typically focus on the family agenda, neglecting the dynamics of family–non-family members, particularly in SMEs, which may also influence innovation and performance. Drawing from faultline theory and based on the Spanish Innovation Survey panel data, the present paper examines family control’s direct U-shape effect on firm innovativeness and its indirect effect on firm performance. By demonstrating a U-shaped relationship between family control and firm innovativeness, we highlight the relevance of ‘faultlines’ between family – non-family organizational members.