Abstract
Employing data on publicly listed Indian manufacturing firms covering the period 1996–2012, we investigate the impact of the presence of banker-director on the board of family firms. We posit several hypotheses that highlight the pros and cons of the presence of banker-directors. The findings provide support to the industry expertise hypothesis which suggests that bankers are less likely on boards on family firms that operate in industries where the possibilities of knowledge spillovers can significantly influence profits. A disaggregated analysis suggests that the performance of these firms varies depending on the nature of equity and ownership interlocking.
7. Concluding remarks
The prevalence of family firms all over the world has compelled research pay increasing attention to family business research. One under-researched issue has been the interaction between corporate governance and corporate performance and in particular, the role and relevance of banker-directors in family firms. It assumes particular relevance for India, given the fact that the newly promulgated Companies Act 2015 underscores the importance of corporate governance by reforming the board of directors.
With a long history and an internal capital market, family-affiliated firms are better able to navigate the dynamics of the marketplace, exploit their information advantage and consequently, encounter lower bureaucratic hurdles as compared to their non-family counterparts. Consequently, their dependence on bankers for funding growth are likely to be lower. Consistent with these expectations, we find that family firms employ less bankers, especially those which operate in sectors where the possibilities of knowledge spillovers are high. Robustness tests using variants of the dependent variable lend credence to our findings.
If family firms are less likely to have banker-directors, this raises the question as to what purpose they serve when they sit on firm boards. The evidence suggests that family firms undertake higher capital expenditures, presumably because banker-directors enable them to attract bank finance.
