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Rice University research sheds light on what family office investors are looking for

Family firms aren't investing in research and development — but why? Getty Images

Family firms are publicly traded companies in which family members own at least 20 percent of the voting stock, and at least two board members belong to the family. For obvious reasons, the central principals in these firms tend to have a longer view than principals in non-family firms. Yet family firms invest less in research and development (R&D) in technology firms than their non-family counterparts. Since investments in R&D are stakes in the future, why this disparity?

Robert E. Hoskisson, a management professor at Rice Business, joined several colleagues to answer this question. Refining a sociological theory called the behavioral agency model (BAM), the researchers defined family-firm decisions as "mixed gambles" — that is, decisions that could result in either gains or losses.

Because success in high technology relies so much on innovation, it's especially puzzling when such a family owned business underinvests in R&D. So Hoskisson and his colleagues focused on the paradox of family firms in high tech.

According to previous research, family owners weigh both economic and non-economic factors when making business decisions. Hoskisson and his team labeled these non-economic factors socioemotional wealth (SEW). SEW can include family prestige through identifying with and controlling a business, emotional attachment to the firm or the legacy of a multigenerational link to the firm.

That intangible wealth (SEW) explained some of the families' R&D choices. While investment in R&D may lower future financial risk, it can threaten other resources the family holds dear. Expanded R&D spending, for instance, is linked with competitiveness. At the same time, it is associated with less family control. That's because to invest more in R&D, businesses typically need more external capital and expertise. So when a family firm underinvests in R&D, it may in fact be protecting its socioemotional wealth.

To further understand these dynamics, the researchers looked at three factors that they expected would raise families' R&D spending to levels more like non-family counterparts.

The first factor was corporate governance. As predicted, the researchers found that family firms with a higher percentage of institutional investors invested in R&D at levels more like those of non-family firms. The institutional investors naturally prioritized economic benefits far more than the founding family's legacy wealth (SEW).

The researchers also analyzed corporate strategy. Family firms, they found, invested more in R&D when it might be applied to related products or markets. Even families bent on preserving non-economic wealth could be lured by a big economic payoff, and related business are easier to control because they are closer to the family legacy business expertise.

Finally, Hoskisson and his colleagues looked at performance. When a family firm's performance lagged behind that of competitors, they reasoned, the owners would spend more on R&D. A higher percentage of institutional investors, the team theorized, would magnify this effect. Interestingly, the primary data (from 2004 to 2009) failed to support this hypothesis, while an alternative data set (from 1994 to 2002) confirmed it.

Further research, the investigators wrote, could shed useful light on this puzzle. They also encouraged study of how family firms conduct mergers and acquisitions. After all, while families can seem inscrutable from the outside, most run on some kind of economic system. The currency just includes more than money.

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This story originally ran on Rice Business Wisdom.

Robert E. Hoskisson is the George R. Brown Emeritus Professor of Management at Jones Graduate School of Business at Rice University.

What's the latest in tech research in Houston? Here are three revolutionary research projects happening right under our noses. Getty Images

Tons of research happens daily at various Houston institutions — from life-saving medical developments to high tech innovations that will affect the greater business community.

In this Houston research roundup, three research projects from three Houston organizations are set to revolutionize their respective industries.

University of Houston researcher explores potential disruption in blockchain

blockchain

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A huge technology question mark within business has been blockchain — how it'll affect the sharing of information and industry as a whole. But, one University of Houston professor and his Texas A&M University colleagues are looking into that potential disruption in a recent paper.

"It's an emerging technology. It's evolving," says Weidong "Larry" Shi, associate professor of computer science at UH, in a UH news release.

Funded by the Borders, Trade, and Immigration Institute, the research has developed into the paper, which was published in the International Journal of Production Research.

A key focus of the research is how blockchain will affect cargo entering the United States, and identifies six pain points within adapting blockchain for cargo management: traceability, dispute resolution, cargo integrity and security, supply chain digitalization, compliance, and trust and stakeholder management, according to the release.

"The wide adoption of blockchain technology in the global SC (supply chain) market is still in its infancy," the article reads. "Industry experts project that on average, it may take about six years for the widespread adoption of blockchain."

Blockchain has the potential to prevent fraud within the global supply chain, among other things.

"The data can't be changed. Everyone (along the supply chain) has a copy. You can add information, but you can't change it," Shi says in the release.

The U.S. Army taps Rice University for network research

Photo by Jeff Fitlow/Rice University

Rice University and the U.S. Army have joined forces for a five-year, $30 million research agreement to modernize the Army — specifically for developing next-generation wireless networks and radio frequency (RF) electronics.

"[The Army Research Laboratory] and Rice will match the right people and capabilities to meet specific challenges, and the cooperative agreement is structured to allow the Army to partner widely across our campus," says Yousif Shamoo, Rice's vice president of research and lead on the ARL partnership, in a recent news release. "One exciting aspect of this partnership is the broader societal benefits. The technologies we're starting with are needed for Army modernization and they could also benefit millions of Americans in communities that still lack high-speed internet."

Without going into too much detail, the two entities are working to advance the Army's existing infrastructure to create networks that can sense attacks and protect themselves by adaption or stealth. The technology has the potential to affect the Army as well as civilians, says Heidi Maupin, the lead ARL contact for the Rice partnership.

"We want to deliver the capability of quickly deploying secure, robust Army communications networks wherever and whenever they're needed," Maupin says in the release. "The technology needed for that will benefit the world by transforming the economics of rural broadband, reducing response times to natural disasters, opening new opportunities for online education and more."

Research out of Baylor College of Medicine advancing information known about vision

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For humans, seeing is pretty simple — just open your eyes. But the process our eyes go through extremely complex, and scientists have had a hard time recreating the process — until now.

Researchers at Baylor College of Medicine in Houston and the University of Tübingen in Germany have developed a novel computational approach that accelerates the brain's ability to identify optimal stimuli. The complete study by the scientists was published in the journal Nature Neuroscience.

"We want to understand how vision works," says senior author Dr. Andreas Tolias, professor and Brown Foundation Endowed Chair of Neuroscience at Baylor. "We approached this study by developing an artificial neural network that predicts the neural activity produced when an animal looks at images. If we can build such an avatar of the visual system, we can perform essentially unlimited experiments on it. Then we can go back and test in real brains with a method we named 'inception loops."

To track neurons and how they work, the researchers tracked brain activity scanning thousands of images.

"Experimenting with these networks revealed some aspects of vision we didn't expect," says Tolias, founder and director of the Center for Neuroscience and Artificial Intelligence at Baylor, in a release. "For instance, we found that the optimal stimulus for some neurons in the early stages of processing in the neocortex were checkerboards, or sharp corners as opposed to simple edges which is what we would have expected according to the current dogma in the field."

The research is ongoing and will only continue to help dissect how the brain sees and interprets visual elements.