Are Shareholders of Family Firms Really Better Off?

52 Pages Posted: 10 Jul 2016

See all articles by Shantaram P. Hegde

Shantaram P. Hegde

University of Connecticut- Finance Department

Rama Seth

Copenhagen Business School

Vishwanath Ramanna

Shiv Nadar University

Date Written: July 8, 2016


Prior research shows that family firms are more profitable and command higher market values than non-family firms in the U.S, Europe and Japan. We examine the stock market performance of family and non-family firms using a large sample of Indian firms. Our main findings are: a) there is no significant difference in the stock market returns of family and non family firms based on the standard four-factor asset pricing models; b) however, both firm profitability and firm value decrease with the level of family shareholdings but increase when family ownership is reasonably high. These results suggest that, unlike in the developed markets, the incentive effects of family ownership are typically offset by its entrenchment and agency effects in family firms in India. Our main finding is that there could be a non-linear relation between family ownership and ROA/Q but family firms need not generate higher market-adjusted or risk-adjusted stock returns relative to non-family firms at higher levels of shareholding, which suggests that there is no systematic relationship between family ownership or control and firm performance.

Keywords: Corporations, Family Firms, Corporate Governance, Ownership Structure, Value of Firm

JEL Classification: G30, G32

Suggested Citation

Hegde, Shantaram P. and Seth, Rama and Ramanna, Vishwanath, Are Shareholders of Family Firms Really Better Off? (July 8, 2016). Available at SSRN:

Shantaram P. Hegde

University of Connecticut- Finance Department ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States
860-486-5135 (Phone)

Rama Seth

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
+45 3815 3815 (Phone)

Vishwanath Ramanna (Contact Author)

Shiv Nadar University ( email )

Greater Noida
Uttar Pradesh
Greater Noida, MA U.P 123108


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