The definition of corporate governance and its implications on an organisation have been a topic of extensive research over the last two decades. OECD describes corporate governance as a set of relationship between company management, board, shareholders and other stakeholders, Wheelan and Hunger (2000) adopt strategic management approach and define the term as a relationship among shareholders, board of directors and management in determining the direction and performance of the corporation. High profile corporate failure and global adoption of best corporate governance practices provided an opportunity to researchers to find financial influence of practicing best corporate governance. Though it is a widespread believe that corporate governance improve long term financial performance but past researches have provided mixed evidences of financial fruitfulness of following corporate governance practices. Researchers such as Gill (2001), Gompers et al. (2003), Weisbach (1988), Chung, wright and Kedia (2003), Hossain, Cahan and Adams (2000) witness a positive effect of corporate governance on financial performance while researchers like Dalton et al. (1998), Bathala and Rao (1995), Hutchinson (2002) find empirical evidence for negative relationship between these variables. If the relationship is uncertain then why firms are still tending to follow good corporate governance practices, one of the reasons may be to attract global investors as emergence of global economy has put pressure on organisations to follow governance practices in order to make their executives accountable. The other reason may be that organisations simply follow best governance practices as rituals to meet the regulatory requirements imposed by governing bodies. Rajagopalan and Zhang (2008) indicate that privatisation and globalisation are main driving forces behind corporate governance reforms in emerging economies like India and China. Emerging economies have cut throat competition for foreign investment and foreign investors prefer firms that follow good governance practices as Rajagopalan and Zhang (2008) argue that it helps foreign investors to preserve their global integrity. Khanna and Palepu (2001) argue that product and labour market globalisation can be taken as a cause of Indian companies adopting best corporate governance practices.
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Different researchers in many contexts with inconsistent findings have studied family control, large shareholding and its impact on financial performance. Researchers such as Berle and Means (1932), Jensen and Meckling (1976) propose that family control mitigate agency conflict which might lead to performance enhancement. Other researchers like Allen and Panian (1982), Gomez-Mejia et al. (2003), Schulze et al. (2001,2003) argue that family firms suffer from capital restriction, intergenerational squabbles, executive entrenchment and nepotism which might have negative impact on firm performance. A number of researches conducted in USA find that Tobin Q of family firms is greater than other type of corporations and founding family ownership is linked to superior accounting and market performance as compared to other companies ( Anderson and Reeb (2003a), Villalonga and Amit (2006), Barontini and Caprio (2006)) while studies conducted in Europe and Asia find that family firms negatively affect the corporate performance different conclusions reached by researchers about the influence of family on firm performance indicate that geographical locations, regulatory environment, culture and values of a society also play a dominant role in defining this relationship. In different societies, families have different values that dominate organisational values of firm controlled by family that eventually influence its performance. Indian private sector business is highly dominated by family groups as Dutta (1997, p.30) points out on the basis of a survey conducted in 1993 that out of 297000 companies only 3000 were non family businesses. He further argues ( p.198) that family business is critically important for Indian society as it is a primary supplier of goods and services, user and creator of economic resources and major creator of jobs for population.Dutta (1997, p 91) argues that for Indians family business is not merely an economic structure but a social identity, it is a social obligations on coming generations to successfully operating the business initiated by their previous generations and this success earns social prestige for them in the community. He further argues that (p. 102) the major difference between western and Indian family business model is that in Indian family business owners generally are hands- on managers. Family traditions, community restrictions, superiority of relationship, male dominance are some factors that make Indian family business different from western and other global counterparts. This study contributes to the existing literature by studying family impact on financial performance in Indian family context that is very different from family firms studied in past researches by different researchers. This study extends past researches conducted on this topic by adding more evidence from one of the fast emerging economies in the world.
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The present study is divided in three parts, first part describe in detail the meaning of family firm as adopted by different researchers in their study. This part also discusses some typical characteristics of Indian family business that make it very different from other family businesses. Literature review portion of first part discusses in detail on the impact of family governance variables on firm performance as witnessed by previous researchers. Second part describe in detail about the approach adopted by us to link family governance variables with financial performance. This part discusses in the detail about the sample selected for study, descriptive statistical inferences and research model. Third and last part analyse regression model, discuss results obtained, and compare it with previous researchers' findings. This part also concludes the findings of this study and discusses limitations and scope of further researches on this topic.
Family firm: definition
Generally, family firm refers to those firms where a family has significant control over fabrication and formulation of policies and management of company. Family control over firm is reflected by large family shareholding or top management position occupied by family members. Literature available for family firm definition is widely diversified and there is no consensus on the definition of family firms among researchers. Colli (2003, p.6) states that it is very hard to find useful definition of family firm despite its relevance in business world. Researchers have considered factors such as family shareholding, voting rights, presence of family members in the board and family CEO. Anderson and Reeb (2003, 2004), Anderson et al.(2003) consider fractional equity ownership of founding family, family members in board, founder or descendent of the founder CEO. Ang et al. (2000) characterise a firm as family firm if a single family controls more than 50% of the company's share while Barth et al. (2005) proposes at least 33% control. Barontini and Caprio (2005) classify a firm as family firm if the largest shareholders have more than 10% of ownership rights and control over more than 51% of voting rights. They also consider issues such as family COO, family members on board, family founder etc. while Gomez-Mejia et al (2003) consider control of at least 5% of voting rights and family relationship of two or more directors in the board. La porta et al. (1999) consider control of more than 20% of indirect and direct voting rights. Fahlenbrach (2009) and McConaughly et al.(1998) consider founder or cofounder or family CEO. Other researchers like Morck et al (1988) and Classens et al. (2000) look for top positions held by family members or those having having blood or marriage relation with dominant family to define a firm as family firm. Villalonga and Amit (2006) characterise a firm as family firm if founder or member of founding family is an officer or director or an owner with more than 5% of firm equity. Miller et al. (2007) define a firm as family firms where numbers of members from same family are involved in the firm as managers or owners during the same period of time or over time. Kaito (2008) define a firm as family firm if founder or descendent is president or chairman and/or the family has largest shareholding in the firm.
As evident from above discussion that different researchers have applied different definitions of family firms in their studies to find relationship between family involvement and its impact on financial performance. Although prima facie these approaches look different but in depth, most of these approaches are similar, as they consider dominance of family in different ways, e.g. shareholding, voting rights, presence in board, holding dominant positions in the firm. For the purpose of this study we follow the approach of Miller et al (2007), Kaito (2008) and define a family firm as those in which founder or descendent or theirblood or marriage relationship is chairman or chairman emeritus or CEO or Promoter (s) and/or founder's family is largest shareholder in the company.
Indian family firm- origin and characteristics-
According to Manikutty (2000) the private sector of Indian industries is dominated by family groups since Indian independence in 1947. As Ray (1979) points out that at the time of independence most of the Indian manufacturing was dominated by presence of leading family groups like Tata, Birla, Thapar, Singhania Families. Gupta and Gollakota (2006) explain it with the hypothesis proposed by LaPorta et al. (1999) and Shleifer and Vishy (1997) which suggests that concentrated ownership offers significant benefits in the economies where property rights are not well defined and/or government has excessive powers in enforcing it. They further argue that during pre independence phase there was low confidence in the British Governments commitment to protect the rights of Indians that resulted in more family ownership in order to reduce risk as compared to other types of ownership. Gupta and Gollakota (2006) also explain the existence of more family firms in India by consider the hypothesis proposed by Claessens and Fan (2002). They further argue that existence of typical trading communities such as Marwaris, Banias,Chettiars and Kammas who have a strong culture of frugality and high saving rate provide a source of capital for businesses so more dominant in indian businesses. The caste system in India, which had allocated the task of business to Vaishya or trading communities, has also played a significant role in development of these communities as skilled business communities. A detailed look of Indian business history after independence describe the journey of Indian businesses from socialistic environment to liberalised or open system, but for this study we are concentrating on the typical characteristics of Indian family firms which make them distinguished from global family firms. Gupta and Gollakota (2006) mention one of the important features of family ownership in India that owners can maintain control over a company even if their actual equity contributions are low; this is possible in part because for growth companies often use debt and their equity bases are low. They further argue that family firms in India emphasise on stability, thrift, conservatism, prefer family member to be CEO and realize high performance under the combined and overall control of family. Rajagopalan and Zhang (2008) argue that dominant shareholding of family, use of pyramidal ownership structure to control large business group, related party transaction and families or allies appointment as main characteristics of Indian family business. Dutta (1997, p.74) states that in India family sons are given exposure to family business during their school/college days and later on they are absorbed in the business in their early 20s and transferring general management control of the business to them in late twenties. He further states that if family business has potential for growth then normally family sons work in their business. Dutta (1997, p.109) sates that most of the business communities in India are orthodox and conservative and follow traditional religious practices more as compared to professional middle class families. Dutta (1997, p.162) further points out that contrary to their western counterparts Indian family business have tendency to invite business solicitors, auditors and stockbrokers to join board as directors because they think that these will provide sound business advice related to the business and board appointment is business savvy rather than strategist. He further states that most the outside directors are close to family and preserve internal family and financial interest. Moreover he states that board exists just to follow mandatory requirements imposed by regulation and in most of the cases board rubber stamp is approval of family decisions. Family keeps overall control on the business as CEO or Chairman where mostly eldest family member remain associated with business as chairman or chairman emeritus to provide valuable advice to younger family member who works as CEO. But the family business in India is changing itself according to market demand as recent annual reports indicate that families are preferring business skills for the appointment of CEO and board members hence modifying conservatism approach, but still proportion of family CEO are significantly higher as compared to non family. We found in our sample of 131 listed family firms that 72.51% of CEOs, 14.21% of chairpersons are family members out of which 37.5% are holding both positions. The family members holding CEO positions in most of the Indian companies are highly qualified with business management degree from globally recognised institutions with diversified experience, the families where family members are not well qualified now prefer non-family expert CEO and keep control over business as chairman/promoters by maintaining largest shareholding. CEO qualification data indicate that 32% of CEOs are foreign qualified (mostly from USA) , 42% of CEOs hold business management degree and most of the CEOs are qualified engineers ( 22%).
Governance variables: impact on financial performance
Board Meeting frequency and firm performance-
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Past literature addressing this relationship reveals a contrasting association between board meeting frequency and financial performance of the firm. Generally, it's a common assumption that boards who regularly meet may have positive impact on the financial performance. Lipton and Lorsch (1992) argue that frequent meeting of board of directors lead to effective governance which eventually results in improved financial performance. Conger et al (1998) suggest that directors need sufficient and well organised period of time to make effective strategic decisions for company welfare, hence board meetings help in improving the effectiveness of board. There is also a opposite view which suggests that board meetings has no real impact on board effectiveness or performance of the firms. Jensen (1993) argues that board meetings are routine task for which agenda is already set by CEO of the company, and maximum time of the board meetings is spent on these tasks which provides less opportunity for outside directors to exercise meaningful control over management of the company. He also suggests that board should show higher activities in the presence of problems and it should be relatively inactive in normal situations. Jensen (1993) further argues that while the consequences of higher board activity are unclear, higher board activity is a likely corporate response to poor performance. The first empirical study to find the relationship between board meeting frequency and firm performance was done by Vafeas (1999), who argue that board-meeting frequency is related to the corporate governance and ownership characteristics in line with agency and contracting theory. He found in his study that boards that meet more frequently were valued less by the market. He also found that years with an abnormally high meeting frequency are followed by better performance, however the improvement in the performance was more significant for the firms experiencing poor performance and firms not engaged in corporate control transactions. Jackling and Johl (2009) studied this relationship on 180 Indian firms and found that the frequency of board meetings have no impact on corporate performance.
Existing literature on this relationship contain mixed opinions about the impact of board meeting frequencies on firm's financial performance. Therefore, board activities and its impact on performance is still an open question. Board meeting outcome and its impact on company's strategic planning depend on the fact that how open is the board and how much powerful is the CEO. If outside directors actively participate in the board meetings and there are two-way exchanges of views rather than routine talk on set agenda, then these meetings may enhance the board effectiveness. This study contributes to the existing literature by examining the relationship between board meeting frequencies and corporate performance in the context of Indian listed family firms.
Board size and corporate performance-
Lipton and Lorsch (1992) and Jensen (1993) argue that larger boards are less effective as compared to smaller boards, large boards reduces communication and coordination among group members hence leading to agency problems. Yarmack (1996) empirically tested this relationship on the sample of 452 large US industrial corporations between 1984 and 1991 and found the negative relationship between board size and firm performance as suggested by Jensen (1993) and Lipton and Lorsch (1992). Hermalin and weisbach (2003) explain above findings and argue that with the increase in size board becomes more symbolic and less a part of management process.Eisenberg et al (1998) studied this relationship on the sample of 879 small and medium Finnish firms from 1992-1994 and found a significant negative correlation between board size and performance. The study by Conyon and Peck (1998) showed an inverse relationship between return on shareholders' equity and board size for five European countries.
Dalton et al (1999) mention about the advisory role of larger board and argue that larger board provide valuable advice to CEO and outside directors impart quality of advice to CEO otherwise unavailable from internal corporate staff. Hermalin and Weisbach (1988), state that ‘‘the CEO may choose an outside director who will give good advice and counsel, who can bring valuable experience and expertise to the board”. Agarwal and Knoeber (2001) state that number of outside directors depend upon type and need of the firm. Berghe and Levaru (2004) state that directors bring expertise and their experience impart more skill and knowledge to the board. Moreover, larger board can provide a broader strategic thinking to the board and reduces CEO domination on the board ( Forbes & Milliken,1999; Goldstein et al,1994). Coles et al (2008) studied the relationship on the sample of 8165 observations on Execucomp firm from 1992 to 2001 and found that in complex firms ( those that are highly diversified across industries, large in size or have high leverage) Tobin Q increases in the increase in the board size while for small fims there is a negative relationship between board size and financial performance. Adam & Mehran (2005) tested this relationship on the sample of 35 banks from 1959-1999 and found a positive relationship between board size and financial performance. Bennedsen et al (2008) studied this relationship on the sample of 7000 closely held small medium corporations and found no performance effect when varying the board size at levels below six directors and they found a significant negative effect when increasing size of board with six or more members. Jackling and Johl (2009) tested this relationship on 180 top Indian companies and found positive relation between board size and firm performance as suggested by Dalton et al (1999) and Berghe and Levarau (2004).
As evident from the past studies a rigid conclusion can't be drawn about the dependency of firm performance on board size. Various studies conducted in different geographical locations for diversified group of companies has come with different opinions, even the studies done in same country for different samples has come with different results. We believe that there are different known (firm size, firm age, CEO domination, industry, local governance regulation & corporate culture) and unknown factor that affect the relationship between firm value and board size. This article looks at this relationship in the context of Indian family firms where presence of family members in the board is significant and most of the family businesses are diversified with presence in more than one industry.
Family presence and financial performance-
In this study we have considered family shareholding, promoters in the board, family CEO and family Chair as the factors witnessing family presence in the board. In family firms family has both ownership and control thus reducing agency cost of managing firm. Fama and Jensen (1985) states that managerial decisions for these firms are very different compared to firms where ownership and control are separated. As James (1999) points out that family manager is deemed to have a broader vista in his business perspective as compared to non family manager which helps in resolving problems associated with ownership and control separation. Researchers have responded to this issue in two ways: by studying the impact of ownership structure on performance ( Berle and Means,1932) or by declaring the endogeneity of the relationship between ownership structure and performance ( Demsetz,1983). But the relationship of ownership structure and other governance variables with financial performance is still in dispute. In the past a significant number of researchers have tried to establish a relationship between family ownership and corporate performance but ended up with different conclusions. Anderson and Reeb (2003), Villalonga and Amit (2006b), McConaughy et al. (1998), Miller et al. (2008) report that family firms offer superior performance as compared to other types of firms while other researchers like Maury (2006), Barth et al. (2005), Cronqvist and Nilsson (2003) and Claessens et al.(2002) find contrasting results. Morck et al. (1988) discuss two conflicting effects- alignment and entrenchment effect of insider ownership. They argue that market value of firm increases initially as the number of shares occupied by insiders increases but market value have negative impact when shareholding of managers increase after a certain level which lead to entrenchment effect. This non linearity of relationship is also witnessed by Cho (1998), Short and Keasey (1999), Gugler et al. (2004), Thomson and Pedersen (2000) in their studies. The superiority of family firms in terms of performance has also been studied by researchers for different generations, Miller at al (2008), Andres (2008) report that not all family firms but only lone founder businesses are superior performers. They further argue that if lone founder businesses are isolated from the family business groups then evidence of superior performance vanishes. Cucculelli and Micucci (2007) also report after analysing the relationship in Italian family firms that founder- run companies are better performers but inherited management has an adverse impact on the profitability of the company. They further argue that literature available for the establishment of this relationship has two key drawbacks such as research results can't be implied with the same conclusion to other samples from other countries and there is uncertainty about the unanimous definition of family firms.
A number of past researches have compared family CEO with non family CEO on various issues like performance, compensation, strategic and competitive advantage. Anderson and Reeb (2003) find in their empirical study that family CEO improves accounting performance but market performance is positively associated with founder CEO and non family CEO hired for job. They further argue that inherited family CEO don't have any impact on market performance of firm.
As discussed in literature review past researches attempted to correlate family impact on the financial performance of firm has been inconclusive and researchers found different results for different geographical locations. Inconclusive and undefined relationship is a motivation to carry this study in an Indian perspective where family firms dominate both service and manufacturing industry. Our findings contribute to existing literature by studying the impact of family presence in the performance of firm in an emerging economy, moreover this study also analyse in detail about the influence of family CEO/chairman and board operating mode on financial performance of firm. This study aims to analyse following issues-
- - What is the impact of family shareholding on the financial performance of family firms?
- - Do family CEO/chairman influence the financial performance of firm?
- - How does board operating mode affect the financial performance of a family firm.
Research Methodology & data selection-
For the purpose of this study 131 family firms are randomly selected from over 5000 firms listed at Bombay Stock Exchange ( BSE). Financial and corporate governance for the year ending 31st march 2008 is collected from annual reports of the companies available from company websites. Most of the information about company history, board of directors, directors' family link and family presence in the board is collected from company's website and Directors database. We have included only those family firms in the sample for which required data was completely available and banks and financial institutions owned by family were excluded from being selected in the data due to the problems regarding calculating Tobin Q for these firms. In order to make our sample as a representative sample of Indian industries we tried to collect data from diversified industries which are indicated by table 1.
Table 2, above summarizes the descriptive statistics for performance variables (Tobin Q, ROGA & ROE) and other independent and control variables. As indicated from the table family shareholding is significantly high (mean = 49.26) in Indian family firms and on average around 25% of the promoters are present in board, most of them are family members or close relatives of family owning company which represent domination of family in the board. Moreover statistical results for our sample of 131 firms reveal that 71% of the firms are managed by family (either founder or successor) CEO and 88% of the firms are looked after by family chairman (executive or non executive) with duality in 37% cases. Statistics also reveal that on average half of the board is represented by outside directors ( 54%) as most of the companies following clause 49 requirement of SEBI. Table 2 also indicate that on average most of the firms have 1o directors in the board meeting more than five times in during the year.
Independent sample t test on the given sample reveal some interesting facts. Statistical analysis in table 3 indicate that smaller family firms have more promoters as compared to larger family firms and more promoters in the board lead to more frequent board meetings. Independent t test also reveal that older and bigger family firms with bigger board have family chairman and such type of board meet less frequently.
To analyse board operating mode specifically associated with a particular type of family characteristic we formulated a variable BOM( Board Operating Mode) by combining two variables board size and total number of board meetings in a financial year. We quantified BOM by assigning numbers 1 to 4 where 1 represents larger board high meeting frequency and 4 represents smaller board and low meeting frequency. We run a cross tab chi square test ( table 4) to find relationship of BOM with family characteristics and found that if promoters are less in a board then board meet less frequently but with the increase in the number of promoters (>25%) size of the board remain unchanged but meeting frequency increases. Further analysis indicates that family CEO doesn't have any impact on board operating mode but presence of family chairman have tendency to reduce size of board and to hold board meetings more frequently.
The Pearson correlation shown in table 5 indicates that Tobin Q is positively correlated with family share holding and negatively correlated with family CEO, ROGA doesn't show any correlation with family shareholding but negatively correlated with family CEO, third performance variable ROE doesn't show any correlation with any of the variables considered for this study.
Relationship between performance and family shareholding is studied by using the following model as base model-
Performance=a+b1(FSHOLD)+b2(PROMO)+b3(FCEO)+b4(FCHAIR)+b5(BOM)+b6(FAGE)+b7(TASSETS)+bn Industrial dummies+ ε
For performance we have taken market performance ( Tobin Q) and traditional accounting performance measures ( ROGA, ROE) for representing firm performance as Bhagat and Bolton (2008) states that stock market performance is more subject to investors anticipation hence doesn't accurately reflect the real performance of the firm. Since this study is concentrating on the impact of family board characteristics on the financial performance of the firm so we have chosen independent variables which correspond to family presence in the board. To find the relationship of these variables with performance a simple regression is done by taking age of the firm and total assets as control variables.
Table 6 presents linear regression between performance variables Tobin Q, ROGA, ROE and independent variables family shareholdings, promoters, family CEO, family chairman and board operating mode. Findings from table 4 for the relationship between shareholding and performance is inconclusive as it is performance variable dependent. For Tobin's Q as performance variable shareholding is positively associated with family shareholding thus supporting the results obtained by Anderson and Reeb (2003), Villalonga and Amit (2006b), McConaughy et al. (1998), Miller et al. (2008). But if we take accounting measures such as ROA and ROE this relationship between family shareholding and performance disappear, which make this relationship more complicated. As table 6 shows strong significance (.003) for relationship between family shareholding and stock market performance of firm so we can infer that family involvement improves stock market performance of firm but its impact on accounting performance is insignificant.
Regression analysis also indicates that promoter's presence in the board as board members do not influence the financial as well as accounting performance of the company. This can be explained with the help of past researches where researchers like Hermalin and Weisbach (1988) and Berghe and Levaru (2004)argue that outside directors bring skill and expertise with them which make them more valuable than inside directors. Most of the family businesses are highly diversified and need not only multiskills to govern but also skill update to survive in one of fastest growing economy in the world, so it can be said that promoters who believe in traditional methods of running business are not effective.
As clear from regression analysis family CEO significantly and negatively affects financial performance of a family owned firm. All three performance measures provide similar and significant result hence making it a strong conclusion. These results clearly indicate that non family CEOs perform better than family CEO which is in the same line as evidenced by past researches. As Burkart et al. (2003) argue that when firm operation demand high managerial ability at that time CEO ability is very crucial for firm performance, so in such a case professionally sound non family CEO can perform better than family CEO. Anderson and Reeb (2003) argue that family CEOs perform better than non family CEOs. Miller et al (2008) and Andres (2008) argue that founder CEOs is more effective as compared to descendents. Our sample of Indian family firm have bigger size multinational firms and a large part of our sample is made up of either manufacturing or high tech firm, both of them require professional competence and diversified skills to manage hence needing expert CEOs.
Regression table further reveals that board-operating mode is negatively related to firm performance if stock market performance is taken into consideration. But this relationship disappears when we take accounting performance measures as dependent variables. Results indicate that smaller board, meeting less frequently is positively associated with performance. Effectiveness of smaller board for better performance is also witnesses by researchers such as Lipton and Lorsch (1992) and Jensen (1993) but other researchers like Dalton et al (1998) and Hermalin and Weisbasch (1999) provide find that larger board is more useful when firm size is large and firm is operating in a diversified industry.
Conclusion- This study examines the impact of family governance variables on financial performance of firm. Regression analysis on sample taken for this study suggests that family shareholding is positively associated with performance and family CEO is negatively associated with firm performance. Analysis also suggests that family chairperson has no impact on financial performance and smaller board with less frequent board meetings is positively associated with the financial performance.
Family shareholding is positively associated with Tobin Q but have no impact on accounting performance suggest that market positively responds for family ownership but it is very hard to conclude that market overweighs family firms as compared with other type of corporations in India, so further studies are required which compare family and other corporations in Indian perspective. Moreover, a comparison of founding family ownership and inherited family ownership for their impact on financial performance should be studied in future in Indian context as past researches suggest that founding family ownership is superior as compared to other corporations in terms of both accounting and market performance. Our analysis suggest that family CEO negatively affects both accounting and market performance and family chairperson has no impact on firm performance, this result is in contrast with actual practices followed by family firms. Our statistical analysis of the sample suggests that in a sample of 131 firms, 95 have family CEO, 115 have family chairperson ( 67 as executive chairperson) and in 49 cases CEO is also working as chairperson.So further studies are required to uncover the generation wise influence of CEOs on financial performance and impact of family CEO by controlling family chairperson variable and vice versa should be done in the future. Moreover, this study also reveals that smaller board meeting less frequently is positively associated with accounting and market performance; although this finding is consistent with few past researches but an industry wise, analysis should be done for practical implication of this study.
There are few limitations of this study: firstly, this study covers a small sample of family firms in India, a bigger sample of family firms might reach to a different conclusion. Secondly, this study is making conclusion on the basis of a single year performance that might have been influenced by some factors other than corporate governance factors. Thirdly, this study makes suggestions on the basis of simple regression analysis that might be inconclusive in some cases, so a better analysis that ceases or minimises impact of influencing variables might come with different conclusions. Future studies should take these suggestions in consideration; moreover, strategic capabilities of family CEO/Chairman should also be taken in consideration for measuring their effect on influencing financial performance of firm.
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