The Effect of Group and Family Ownership on Firm Performance : Empirical Evidence from Pakistan

This paper examines the impact of group - and family - ownership on financial performance of a sample of firms listed on the Karachi Stock Exchange from the year 2003 to 2008. Since previous studies have found ownership structure to be endogenously determined, we account for this problem by using two 2SLS technique. This paper contributes to the extant literature as it uses a larger sample of 158 firms and the 2SLS technique; existing studies on this topic in Pakistan lack both of these aspects. Results of the OLS and 2SLS regressions show that group ownership in a firm has no significant impact on a firm's performance. However, when group ownership is significantly higher in a firm, the given firm performs poorly. This is an indication of some sort of expropriation of the minority shareholders. Moreover, the analysis shows that larger firms, firms with higher sales-turnover ratio and growing firms performe better than other firms. Firms with higher financial leverage show poor financial performance. For comparing the performance of family and non-family firms, a sample of 28 family and 26 non-family firms listed on Karachi Stock Exchange is used. The results of two sample tests show that mean Tobin's Q of family firms is economically larger than non-family firms; though the difference is statistically insignificant. Accounting-based measures such as return on assets, assets turnover, and profit margin show similar statistics - the statistical differences are negligible between family and non-family firms