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Impact of family ownership on idiosyncratic risk

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  • Ramanathan Geeta
  • Krishna Prasanna

Abstract

This paper examines the role and impact of family ownership upon the idiosyncratic risk of Indian firms. The recent global financial crisis was primarily attributed to excessive risk taking, which raises pertinent questions on the effectiveness of firm-level risk management practices. As per the alignment theory, family firms with higher concentration of ownership would be able to mitigate excessive market risks during economic drifts and cycles. The impact of family/outside ownership on the risk-taking behaviour of firms has been examined using market-based risk measures. Utilising a sample of 404 firms with yearly data for 9 years from 2004 to 2013, 3,636 firm-year observations have been analysed using the panel data model. The results of this analysis confirm that family-controlled firms are associated with higher risks, especially with greater idiosyncratic risk. This finding holds true even after the data are segregated into pre-crisis and crisis-affected periods. An instrumental variable approach was adopted to control for endogeneity, which also supports and substantiates the results.

Suggested Citation

  • Ramanathan Geeta & Krishna Prasanna, 2016. "Impact of family ownership on idiosyncratic risk," International Journal of Corporate Governance, Inderscience Enterprises Ltd, vol. 7(4), pages 325-352.
    • Handle: RePEc:ids:ijcgov:v:7:y:2016:i:4:p:325-352
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    Cited by:

    1. Ritika Gupta & Jacqueline Symss, 2023. "Does Corporate Governance Impact Risk Disclosure? An Empirical Analysis in the Indian Context," Indian Journal of Corporate Governance, , vol. 16(1), pages 9-27, June.

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