Adversity breeds ingenuity: exploring the enduring effect of historical Yellow River flooding on family firm innovation

Historical natural disasters could leave deep imprint on family firms' innovation trajectory. Drawing upon the well-established link between geographic characteristics, institutions and innovation dynamics, this study investigates the effect of historical natural disasters on family firm innovation, focusing specifically on the impact of the historical Yellow River flooding. By leveraging the both sides of the Yellow River floodplain areas (YRFA) and employing the regression discontinuity design (RDD), we find compelling evidence that the historical Yellow River flooding significantly promotes family firm innovation in the affected areas. Meanwhile, the mechanism shows that the Yellow River flooding increases family firms' risk-taking propensity and fosters the concentration of ownership, thereby leading to a higher engagement in innovative activities. Furthermore, we demonstrate that the positive impact of the YRFA on family firm innovation is mainly attributed to the cumulative effects of the historical flood, rather than individual flood events. Overall, this study underscores the enduring historical legacy that shape the dynamics of family firm innovation.