Family Ownership and Firm Performance: Evidence from India

We examine how various aspects of family ownership affect both market and accounting performance for an emerging market like India. We also study whether non-family promoters help to reduce the expected agency problems arising between family promoters and outside shareholders. Using feasible generalised least squares for a sample of 1,100 firms listed on BSE during 2007 to 2014, we show that not only do family firms perform worse than nonfamily firms, but also that family ownership has a negative impact on both accounting and market performance of firms. Evidence also indicates that family ownership has a U-shaped relationship with firm performance suggesting that at higher levels of family ownership, convergence of interest hypothesis may be useful in explaining this positive relationship. Non-family promoters help to improve market value at lower levels of ownership but as their ownership increases, the beneficial effect of their active monitoring diminishes.