Are Shareholders of Family Firms Really Better Off?
52 Pages Posted: 10 Jul 2016
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: Suggested Citation