A Study on Ownership Concentration by Family Members and Financial Performance: Evidence from India

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DOI: 10.21522/TIJMG.2015.SE.19.02.Art003

Authors : Kanu Pahwa


Ownership concentration is stated by the number of large-block shareholders and if the percentage of firm's shares owned by the family members then that makes them as Family owned firms. They form the backbone of Indian economies, as they contribute towards GDP of country. Therefore, family business management is an emerging area of academic interest. In this regard, this empirical research deals with the analysis of relationship between concentrated ownership by the family members and its impact on financial performance, measured by the Return on Asset (ROA) and Return on Equity (ROE). The present study analyses the performance of Indian family businesses for firms listed on BSE 500 Index for a period of 2016-2018. An equity ownership above 20% by family members, also the family member as a chairman of the board and multiple generations or multiple members actively involved in business has been identified as family owned business. Using a representative sample of 375 Indian family owned businesses out of BSE 500 Index. Statistical analysis of collected data includes descriptive statistics, determination of the correlation coefficient between ownership concentration and financial performance, multiple OLS regression analysis to determine the impact of ownership concentration on financial performance. The results show that there is a U-shaped relationship between ownership concentration and performance, which indicates that the increase in ownership concentration to a certain limit of 55% positively affects financial performance. When ownership concentration exceeds 55%, financial performance deteriorates.

Keywords: Ownership Concentration, Family owned Business, Corporate Governance, Shareholders, Equity and Financial Performance.



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