Concentrated Ownership and Firm Performance: Does Family-Control Matter?
Strategic Entrepreneurship Journal, Forthcoming
Posted: 19 Aug 2011
Date Written: July 18, 2011
In developed markets including the United States, family-controlled firms, in particular founder-controlled firms, have been associated with higher firm performance than their non-family counterparts. Such family-controlled firms have concentrated ownership, which according to agency theory reduces agency costs and leads to superior firm performance. However, based on current research, it is not clear whether it is the family-control or concentrated ownership that bestows the advantages that lead to enhanced firm performance. Therefore, in this study, while examining different types of concentrated ownership, we evaluate whether the family form of concentrated ownership adds additional value to performance.
Based on an analysis of panel data from the Indian corporate sector, we find that in general, firms with concentrated ownership outperform firms with dispersed ownership thus confirming results of past research. Surprisingly and more importantly, however, we find that there is no significant difference in performance between family-controlled firms and those firms controlled either by foreign corporations or by the state. This result is consistent with the notion that concentrated ownership, not family control, is a key determinant of firm performance.
Keywords: family firms, concentrated ownership, performance, state-owned firms, multinational firms
JEL Classification: G3, G32, G34
Suggested Citation: Suggested Citation