Do Family-Held Firms Have Weak Corporate Governance?

Abstract

This paper examines the linkage between a firm’s ownership structure and the effectiveness of its corporate governance. The main aim is to test the hypothesis that firms owned and controlled by families perform worse in corporate governance than widely-held companies. We have used data from some of India’s largest companies in our analysis and CLSA’s research to quantify the quality of their governance. Our results confirm the initial hypothesis. However, the study adds insight by highlighting that board level entrenchment seems to play a bigger role in diminishing the level of performance, rather than plain family ownership. For investigative purposes, we have looked at the impact of several other factors including subordination to foreign listing rules, firm size, years since incorporation, percentage of independent board members, and profitability. Our results indicate that their impact is not significant.