Do Family-Held Firms Have Weak Corporate Governance?

27 Pages Posted: 9 Jan 2012 Last revised: 27 Jan 2012

See all articles by Nikhil Arora

Nikhil Arora

ESCP Europe

Jyoti P. Gupta

European School of Management (ESCP-EAP)

Date Written: May 9, 2011

Abstract

This paper examines the linkage between a firm’s ownership structure and the effectiveness of its corporate governance. The main aim is to test the hypothesis that firms owned and controlled by families perform worse in corporate governance than widely-held companies. We have used data from some of India’s largest companies in our analysis and CLSA’s research to quantify the quality of their governance. Our results confirm the initial hypothesis. However, the study adds insight by highlighting that board level entrenchment seems to play a bigger role in diminishing the level of performance, rather than plain family ownership. For investigative purposes, we have looked at the impact of several other factors including subordination to foreign listing rules, firm size, years since incorporation, percentage of independent board members, and profitability. Our results indicate that their impact is not significant.

Keywords: ownership, family, corporate governance, performance, entrenchment, Sensex, SEBI, CLSA

JEL Classification: G30, G32, G38

Suggested Citation

Arora, Nikhil and Gupta, Jyoti, Do Family-Held Firms Have Weak Corporate Governance? (May 9, 2011). Available at SSRN: https://ssrn.com/abstract=1981962 or http://dx.doi.org/10.2139/ssrn.1981962

Nikhil Arora (Contact Author)

ESCP Europe ( email )

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Jyoti Gupta

European School of Management (ESCP-EAP) ( email )

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