Effects of family Ownership on Corporate Investment and Performance Evidence from Indian initial public offerings

Abstract

The objectives of my thesis are to examine how family involvement influence (a) newlineinvestment spending and (b) operating performance. I conduct my study for a sample of Indian firms that completed an initial public offering. The focus on India, an emerging economy, and on initial public offerings are what distinguishes this thesis from prior work. newlineThe results of the study on IPO investment are as follows. First, I document that neither capital expenditures nor RandD spending are related to any of the family involvement variables. The theory linking family involvement to investment suggests that risk-aversion and the preservation of socioemotional wealth by family firms cause them to invest less. In contrast, concern about the long-term causes them to invest more. These conflicting motivations could explain the absence of a relationship. Second, I find that both family ownership and the presence of family members on the board are associated with lower acquisition spending. I attribute this result to risk-aversion and concerns about future generations of family owners. Third, I find that both family ownership and family presence on board reduces the sensitivity of capital expenditures to internal funds. This finding suggests that family firms are less afflicted by asymmetric information problems and are less dependent on internal funds to finance their investment. Fourth, I find that increases in family ownership are positively and significantly related to dividends payouts. La Porta, Lopez-de Silanes, Shleifer, and Vishny (2000)) argue that family firms to alleviate concerns about expropriation and to build trust are likely to pay higher dividends. The findings on dividends suggest that building trust is an important motivation in the dividend policy of newly listed firms in India. Neither family presence on the board nor the presence of family members as key managerial personnel has a significant impact on dividend payout. In my study of IPO performance, I examine the effect of family ownership on post-IPO.. newline