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Family Firms in India: Performance and Relevance

Apr 05, 2022 05:37 PM IST

Policymakers must be open to framing targeted interventions needed to create favourable conditions to improve the performance of family firms.

While the average trend is negative, there are family firms across industries that have performed exceedingly well. (Photo by Mikhail Nilov/Pexels)

By SOUGATA RAY, NUPUR PAVAN BANG, NAVNEET BHATNAGAR
Concentrated ownership of a firm in the hands of a family presents unique opportunities and challenges that impact its performance.

In India, family firms are a dominant force in the economy, contributing significantly to nation-building, the exchequer, creation of jobs and asset creation. Their footprints on the Indian economy are indelible. It is imperative for family firms to perform well, grow profitably, create value and contribute to economic progress if India has to realise its full potential.

Researchers have argued that family firms have better monitoring and lower agency costs than non-family firms, have incentives to take long-term views of maximising firm value, and are value-driven organisations. Yet, many of them are found to be plagued by rent-seeking behaviour, succession issues, lack of transparency and governance, lack of professionalisation, and family conflicts. Understandably, therefore, there is mixed evidence globally on whether family firms perform better than non-family firms.

Also read: The unique values of India's business families