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Concentrated ownership and firm performance: does family control matter?



In developed markets including the United States, family-controlled firms, in particular founder-controlled firms, have been associated with higher firm performance than their nonfamily counterparts. Such family-controlled firms have concentrated ownership, which, according to agency theory, reduces agency costs and leads to superior firm value. Extant research, however, is not clear whether it is the family control or concentrated ownership that bestows the advantages that lead to enhanced firm performance. By examining different types of concentrated ownership, this study evaluates whether family ownership adds value beyond that provided by concentrated ownership. Based on analyses of panel data from the Indian corporate sector, we find that, in general, firms with concentrated ownership outperform firms with dispersed ownership. Surprisingly, and more importantly, however, we find there are no significant performance differences among family-controlled firms and firms controlled by either foreign corporations or the state. This result is consistent with the notion that concentrated ownership, not family control, is a key determinant of firm performance. Copyright © 2011 Strategic Management Society.