Award-Winning Research from IIT-KGP's VGSOM Indicate Higher Risks with Family-controlled Firms
The KGP Chronicle (December 2, 2020)
Higher Risk in Concentrated Business Control--VGSOM Researchers
Award-Winning Research from IIT Kharagpur’s Vinod Gupta School of Management Indicate Higher Risks with Family-controlled Firms
In an award-winning research study conducted by faculty and alumni at IIT Kharagpur’s Vinod Gupta School of Management, the researchers have found that family and family control ownership is negatively related to firms’ profitability due to lags in management.
The study is based on decadal data from 2007 to 2017 of 421 listed firms in emerging markets which have at least 5%-20% of the equity capital is owned by a family group including concert promoters. The results show that family-owned firms dominant with concentrated ownership pay lower dividends leading to lower valuation and higher idiosyncratic risk.
“While the firms undertake significant trading in the stock market, high-risk tendencies and lower dividend payouts are the outcomes of ineffectiveness in managerial decision-making and policies. Our study points to the concentration of ownership as the primary reason rather than to the information asymmetry,” explained Prof. Arun Kumar Misra. (Read More)