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Absorptive capacity (AC), the ability to leverage external knowledge for innovation, helps explain the mixed findings on family firms' (FFs) innovation performance. Our research focuses on the chief executive officer (CEO)’s role – whether family or non-family and founding or later generation – in influencing AC. We also explore how firm size and environmental dynamism affect these relationships, offering insights into varying AC levels among FFs.

Ordinary least squares (OLS) regression models were estimated to test the hypotheses using a sample of 364 FFs in Spain.

FFs’ AC is greater when the CEO is a family member, and even more so when the family CEO belongs to the founding family generation. While AC diminishes in larger FFs, this effect is mitigated when the CEO is a family member. The predicted moderating effect of environmental dynamics is not supported by the analyses.

This paper adds insights about the drivers of heterogeneity in innovation among FFs, addressing recent calls for more nuanced views of how family members drive the strategic behavior of the business and incorporating considerations of different types of FFs based on the identity of the firm CEO. The results overall support the theoretical claims and also open up important questions for future studies.