Family firms up stake over last decade in India: Research

HYDERABAD: Promoters of family firms have increased their stake in their NSE and BSE listed companies over the last decade, findings of a research study released here today revealed.

Indian School of Business (ISB)'s Thomas Schmidheiny Centre for Family Enterprise conducted the research study "Family Businesses: Promoters' Skin in the Game 2001-2017," which reveals the pattern of increasing stake of promoters in NSE and BSE listed family firms.

The study, conducted by Dr Nupur Pavan Bang, Professors Kavil Ramachandran and Anierudh Vishwanathan of the Centre and Professor Sougata Ray of IIM Calcutta, provides insights into the ownership pattern of family firms in comparison to the non-family firms and also explores the heterogeneity within family firms.

It is a first-of-its kind research study that presents and analyses the trends in equity ownership by various classes of shareholders for 4,615 firms listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) of India, across different ownership categories, for the period 2001- 2017, according to ISB.

The research study attempted to give a bird's eye view of the shareholding pattern of listed Indian firms.

Dr Nupur Bang said, "We found that promoters of family firms have increased their stake in their companies over the last decade, while State owned Enterprises (SOEs), Other Business Group Firms (OBGFs) and Standalone Non-family Firms (NFs) have witnessed a decline in promoter shareholding."

This, she said, reinforces the preeminent role of family-controlled businesses in India.

It seems to imply that the engine of growth of Indian businesses would not be dependent on overseas or other promoter categories.

Instead, promoters of family firms would continue to play a major role.

Executive Director of the Centre, Professor Kavil Ramachandran said the ownership pattern of listed businesses in India is fairly concentrated, especially in the case of family firms, SOEs and MNCs.

While this has significant positive effects, there is also a need to keep close vigil on their governance practices, he added.

The research study found that while the concentration of promoters' shareholding is decreasing in non-family firms, it is increasing in the family firms.

By steadily increasing their shareholding in the firm, the promoters of family firms, both family business group firms (FBGFs) and standalone family firms (SFFs), were signaling their growing confidence in the potential of their company, thereby instilling confidence among the investors.

Promoters of MNCs have also increased their stake in their Indian subsidiary, probably indicating their belief in the 'India story.'

The promoter stake in SOEs has been steadily falling over the past decade.

This is in line with the policies of the successive governments in India to divest their holding in the SOEs.

OBGFs and standalone non-family firms (NFs) have also witnessed a decrease in promoter shareholding.

Non-promoter institutional shareholding is lower in family firms when compared with non-family firms and it has decreased further between 2007 and 2017, the study noted.