Family-owned firms fare better: CSRI

Indian family-owned businesses are among the best in Asia, accounting for more than 50% of the top 30 performers in terms of growth and profitability.

Further, with a total of 111 companies and a market capitalisation of $839 billion, India is the third largest market globally in terms of number of family-owned companies, according to a latest study.

Shares of Indian family-owned companies generated an average annual return of 13.9% since 2006, compared to 6% recorded by their non-family-owned peers, and such Indian firms, on an average, generated some of the highest absolute cash flow returns on investment across Asia-ex Japan group, showed an analysis by Credit Suisse Research Institute (CSRI).

Companies such as Bajaj Finance, Page Industries, Eicher Motors, Berger Paints, MRF, Ashok Leyland, Natco Pharma, Pidilite Industries and Dewan Housing Finance are among those that made to the top list.

Further, India was ranked number three with 111 companies, with the top spot being occupied by China with 159 companies, followed by the U.S. with 121.

Longer-term trend

“The longer-term trend of out-performance of family-owned companies is clear... having delivered cumulative excess returns in every region and sector since 2006,” the report said.

The trend could be due to superior financial performance driven by the longer-term focus that family-owned companies appear to have, according to CSRI.

“The surveys show that family-owned companies have a greater focus on long-term quality growth than non-family-owned companies. Greater family ownership also tends to increase the use of longer-term financial targets for management remuneration and family-owned companies prefer conservative funding structures for investments,” it explained.

The study defines a family business as one where either direct shareholding by founders or descendants is at least 20% or the voting rights held by the founders or descendants is at least 20%.

Interestingly, the study further found that family-owned companies across emerging markets were much younger than their peers in developed markets.

Family-owned companies in developed Europe were founded on an average 82 years ago compared to 37 years ago in the case of companies in Asia ex-Japan and 30 years in Europe, Middle East and Africa (EMEA).

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Printable version | May 17, 2021 12:12:34 AM |

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