By Professor Dalhia Mani, Forthcoming, Asia-Pacific Journal of Management.
In India, no systematic study has been conducted thus far to check the extent of disproportionate control, although, narratives in the popular media sometimes point to the role played by certain families like the Ambanis or the Tatas, and to certain communities like the Marwaris. Professor Dalhia Mani, in an ambitious economy-wide longitudinal study, seeks to answer these questions.
Who controls the Indian economy? This question is particularly important given that a few individuals can control vast swaths of an economy using cross-shareholdings and pyramidal shareholding structures (example, an individual (or a family) owns a controlling share in Company A; Company A in turn owns shares in Company B, C, and D,; and these companies in turn own shares in multiple other companies; and so on). La Porta et al. (1997) show that most Western countries are characterized by such disproportionate control by a few families, and Carney et al. (2013) show that most Asian countries also have the same characteristic. Such disproportionate control leads to a reduction in the dynamism and strength of the economy, and hence requires policy interventions.
In India, no systematic study has been conducted thus far to check the extent of disproportionate control, although, narratives in the popular media sometimes point to the role played by certain families like the Ambanis or the Tatas, and to certain communities like the Marwaris. Second, it is unclear whether the role of certain families and communities in India is increasing or decreasing over time, with some accounts claiming that increasing professionalization has made families and communities redundant. Finally, even if certain families or communities play a disproportionate role in the corporate landscape in India, it is unclear whether this is an indication of entrenchment or if it is an indication of the entrepreneurial prowess and contribution of these specific individuals or communities.
Mani (2017), in an ambitious economy-wide longitudinal study, seeks to answer these questions. Using the director and shareholder list of listed Indian companies in 2001, 2005 and 2009, and using algorithmic last-name matching, Mani finds that 42% of Indian directors and owners have at least one family member among the directors and owners in the same firm, and 44% of directors and owners belong to one of three trading communities (Marwaris, Gujaratis, and Parsis, which together represent less than 7% of the Indian population). The other 9 traditional trading communities (like the Khatris, Bohras for example) represent less than 0.01% of the directors and owners in the economy. In addition, there is no significant change in these percentages over time. When comparing with prior research across the world, using the exact same measures as prior research, Mani’s results in India show that the percentage of family firms in India is substantial, much higher than in the U.S., but comparable to other East Asian countries.
Further, Mani tests whether the pattern of family and community firms suggests entrenchment or the role of kinship ties in encouraging entrepreneurship. Mani finds that firms with a greater family (or community) control tend to be smaller, younger, and with lower market-share, and she also finds significant churn in the identity of the largest firms in the economy over time. Taken together, these findings indicate that family and community control in Indian corporates is substantial, but their control is spread across the economy and in time in a pattern that indicates entrepreneurship (rather than entrenchment) - entrepreneurs rely on kinship ties to help them start and build firms. However, the disproportionate role of certain communities in entrepreneurial activity suggests the need to make entrepreneurship knowhow and skills available to a larger section of the population so that entrepreneurship is not limited to a few communities and so that even entrepreneurs without family support can start and build new businesses.
By Professor Dalhia Mani, Forthcoming, Asia-Pacific Journal of Management.
In India, no systematic study has been conducted thus far to check the extent of disproportionate control, although, narratives in the popular media sometimes point to the role played by certain families like the Ambanis or the Tatas, and to certain communities like the Marwaris. Professor Dalhia Mani, in an ambitious economy-wide longitudinal study, seeks to answer these questions.
Who controls the Indian economy? This question is particularly important given that a few individuals can control vast swaths of an economy using cross-shareholdings and pyramidal shareholding structures (example, an individual (or a family) owns a controlling share in Company A; Company A in turn owns shares in Company B, C, and D,; and these companies in turn own shares in multiple other companies; and so on). La Porta et al. (1997) show that most Western countries are characterized by such disproportionate control by a few families, and Carney et al. (2013) show that most Asian countries also have the same characteristic. Such disproportionate control leads to a reduction in the dynamism and strength of the economy, and hence requires policy interventions.
In India, no systematic study has been conducted thus far to check the extent of disproportionate control, although, narratives in the popular media sometimes point to the role played by certain families like the Ambanis or the Tatas, and to certain communities like the Marwaris. Second, it is unclear whether the role of certain families and communities in India is increasing or decreasing over time, with some accounts claiming that increasing professionalization has made families and communities redundant. Finally, even if certain families or communities play a disproportionate role in the corporate landscape in India, it is unclear whether this is an indication of entrenchment or if it is an indication of the entrepreneurial prowess and contribution of these specific individuals or communities.
Mani (2017), in an ambitious economy-wide longitudinal study, seeks to answer these questions. Using the director and shareholder list of listed Indian companies in 2001, 2005 and 2009, and using algorithmic last-name matching, Mani finds that 42% of Indian directors and owners have at least one family member among the directors and owners in the same firm, and 44% of directors and owners belong to one of three trading communities (Marwaris, Gujaratis, and Parsis, which together represent less than 7% of the Indian population). The other 9 traditional trading communities (like the Khatris, Bohras for example) represent less than 0.01% of the directors and owners in the economy. In addition, there is no significant change in these percentages over time. When comparing with prior research across the world, using the exact same measures as prior research, Mani’s results in India show that the percentage of family firms in India is substantial, much higher than in the U.S., but comparable to other East Asian countries.
Further, Mani tests whether the pattern of family and community firms suggests entrenchment or the role of kinship ties in encouraging entrepreneurship. Mani finds that firms with a greater family (or community) control tend to be smaller, younger, and with lower market-share, and she also finds significant churn in the identity of the largest firms in the economy over time. Taken together, these findings indicate that family and community control in Indian corporates is substantial, but their control is spread across the economy and in time in a pattern that indicates entrepreneurship (rather than entrenchment) - entrepreneurs rely on kinship ties to help them start and build firms. However, the disproportionate role of certain communities in entrepreneurial activity suggests the need to make entrepreneurship knowhow and skills available to a larger section of the population so that entrepreneurship is not limited to a few communities and so that even entrepreneurs without family support can start and build new businesses.