GOVERNANCE OF LARGE FAMILY COMPANIES IN TRADITIONAL AND NEW ECONOMY INDUSTRIES IN INDIA: EFFECTS ON FINANCIAL PERFORMANCE

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Abstract

This study adds a new context to the body of empirical literature on relationships between corporate family ownership, governance and financial performance. The context is large family listed companies in India operating in traditional industries under succeeding generations of family management compared to companies operation in India’s ‘new economy’ industries under first generation family entrepreneurs. Results reveal a negative relationship between family CEO and firm performance, and a positive relationship between family ownership and firm performance, which supports prior findings in other contexts. However, in this study of Indian family companies, the former relationship is found in ‘new economy’ industries only, whereas the latter relationship is found in traditional industries only. Additionally, in India, Boards that are more actively involved in management processes will record superior financial performance in companies in traditional industries, but Boards less actively involved achieve better financial performance in new economy industries. These results are interpreted in light of historical Indian family business practices and modern changes. Implications for the future of the traditional family business model, as India rapidly progresses towards ‘new economy’ industries, are drawn from the results.

Keywords: Family Ownership, Family CEO, Board Governance, ‘New Economy’ Industries, Corporate Financial Performance, India

How to cite this paper: Pandey, R., Taylor, D., & Joshi, M. (2011). Governance of large family companies in traditional and new economy industries in India: Effects on financial performance. Corporate Ownership & Control, 8(3), 108-123. https://doi.org/10.22495/cocv8i3p9