Who does it best? Family and nonfamily owners and leaders navigating institutional development in emerging markets

Abstract

Building on the institution-based view and agency theory, this paper studies the relationship between institutional development, family ownership, family leadership, and firm profitability in emerging markets. We propose that national institutional development reduces agency costs and improves the profitability of emerging market firms, but that this effect varies for family vs. nonfamily firms. We also consider the heterogeneity among family firms by comparing family-led vs. nonfamily-led family firms. Using data for 503 Indian firms from 2003 to 2012, we find that although institutional development tends to increase the profitability of domestic firms, the greatest beneficiaries are family firms. Furthermore, we find that family firms that are family-led tend to perform better than those that are nonfamily-led, even when institutional improvements are considered.