What is Firm Profitability

Understanding family firm heterogeneity has become a topic of critical importance among academics and practitioners in the family business research field. This chapter aims to provide new insights into this theme by examining the differences in profitability within the pool of family firms. Furthermore, this chapter introduces an exceptional strategic element, namely innovative effort, to analyse when and to what extent the deployed innovative effort influences the family involvement in management-firm profitability relationship. Using a panel dataset on 3,164 observations of Spanish private manufacturing firms over the 2000–2015 period, the findings reveal significant differences in the profitability of family firms depending on the degree of family involvement in the firm's management. The findings also show that innovative effort reinforces the positive effect that family involvement in management exerts on firm profitability.