Whether and how the Financial Performance of family companies is better than the non-family companies ?

 The economic backdrop of most nations remains dominated by family businesses. Family control is common in publicly traded Indian companies. Such controlling families often hold large shareholdings and for the most part have representation at the top management level as well as on the board. Consequently, an overarching question that emerges is whether and how family ownership, management, and governance affect corporate performance.

An article from Vikalpa attempts to discern the relationship between family involvement in business (FIB) and financial performance (FP) of companies. In addition, it also attempts has to examine the difference in accounting and market measures of FP for family companies (FCs) vis-à-vis non-family companies (NFCs).

The article presents results of S&P BSE 500 Index that confirm that FCs are a predominant form over a number of industries in a large sample, In addition, founding families are often involved in the actual management of the companies. Financial Performance is higher for Family Companies vis-à-vis Non-Family Companies and based on the market performance measure, Family Companies appears to be better performers with higher outside board representations. On further analysis of the profile of independent directors, it has been observed that they had a diverse background and expertise. The impact of firm size and unaffiliated block holdings on Financial Performance was found to be significantly negative.

Family firms fare better on both accounting and market performance measures. Their strong support network system, shared family aspirations and values, as well as long-term commitment to the business make them more decisive than non-family firms.

Register now to read full article