Effects of controlling family status, family-impacted governance and top management characteristics on financial and social performance of listed companies in India

Pandey, R 2012, Effects of controlling family status, family-impacted governance and top management characteristics on financial and social performance of listed companies in India, Doctor of Philosophy (PhD), Accounting, RMIT University.


Document type: Thesis
Collection: Theses

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Title Effects of controlling family status, family-impacted governance and top management characteristics on financial and social performance of listed companies in India
Author(s) Pandey, R
Year 2012
Abstract The aim of this thesis is to develop models and provide evidence about the impacts of familyrelated ownership, governance and powerful management players’ characteristics on corporate performance, both financial and social, of listed companies in India. In relation to financial performance, some, but not all of these impacts have been studied in various contexts with inconsistent findings. The country context is found to make a difference. Although there is a substantial body of literature on the relationships between family control and other governance characteristics and corporate financial performance, there is much less prior research on how these factors relate to corporate social (including environmental) performance.

This thesis makes an original contribution to the existing literature on corporate governance in family businesses by filling several gaps in the evidence currently available, especially concerning effects on corporate social performance. It does so by designing and testing a comprehensive set of models. These models contain several aspects lacking from prior empirical research about family controlling status, family-impacted governance mechanisms and family-positioned key management players and their effects on financial and social performance. The thesis also provides first-time evidence in the context of a large emerging economy, India. Large listed family-controlled companies in India have the distinctive characteristics of a dominance of family business groups owned by culturally-identified ‘trading communities’, and for several mega-size corporations, the presence of a long family succession with fourth or fifth generation family members establishing their unique management culture that emphasises the recruitment of loyal executives and strict control of powerful patriarchs over both the family and business. Using over 12000 observations collected from a sample of the 300 largest family-controlled companies listed on the Bombay Stock Exchange in 2010, this thesis applies several quantitative techniques including regression analysis to investigate the abovementioned relationships. Results reveal a number of significant effects on financial as compared to effects on social performance. First, in terms of family control through ownership or status, the family shareholding is positively related to financial performance but has a significant negative effect on social performance. For family status, its reputation significantly relates to financial performance but has no impact on social performance. The family founder’s presence on the board has a negative impact on both financial and social performance.However, family companies owned by longer succeeding generations are significantly associated with better social performance. Second, in terms of family-impacted board governance mechanisms, this thesis finds that outsiders’ presence on the board have a significant positive impact on social performance. Further, higher numbers of board committees are positively related to both financial and social performance. Third, in terms of the impacts of normative influences of family-positioned powerful management players, this thesis finds that demographic characteristics of family chairpersons have more impact on financial and social performance as compared to family CEOs. Also those chairpersons and CEOs with greater outside connections and holding a foreign qualification have a positive influence on social performance, where as those holding an MBA qualification have a negative impact on both financial and social performance.

After cautioning for the modelling and measurement limitations underlying these findings, there are several insights provided by them that can have implications for controlling family members, as well as corporate governance regulators in India. First, controlling family members need to address the issue of better integration of company performance since companies with higher family ownership are found to have significantly poorer social performance relative to financial performance. Family members should also question the need for the family founder to have a presence on the board since this is found to negatively affect both financial and social performance. Second, corporate governance regulators, when reviewing guidelines and regulations, should consider requiring an increase in the number of board committees, since this is found to positively affect both financial and social performance of listed family-controlled companies. Further, regulators might consider guidelines on the educational qualifications of chairpersons and CEOs that encourage a foreign qualification, but not an MBA.
Degree Doctor of Philosophy (PhD)
Institution RMIT University
School, Department or Centre Accounting
Keyword(s) Listed companies
India
Family controlled companies
Family related ownership
Corporate performance
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