Propensity of Indian Private Firms to Use Leverage and Growth as Tools to Enhance Control by Promoters

Abstract

Indian private firms are predominantly family firms with management generally under firm control of individual promoters and their family members or associates. It may be educative to study the differences in firm characteristics of private firms vis a vis PSUs and foreign firms at one hand and within various groups of private firms on the other. Significant differences are expected among different group of non financial firms like top 50 business houses, large business houses, other business houses, stand alone private firms, PSUs and foreign firms. The study will give insight into functioning of these firms which has significant bearing on their corporate governance standards. It may also be interesting to find the instruments used by promoters to enhance their control. In addition to equity, the reliance can be on debt in a significant manner by private firms for enhancement of control. Another interesting aspect of study could be whether private firms tend to attach greater importance to growth rather than economic value which could be self-fulfilling at the cost of interest of minority shareholders. It could also be instructive to analyse whether value get locked or destroyed in business groups as they tend to undertake less profitable ventures merely to get presence or foothold in diverse businesses at the cost of overall economic value.