Are business groups different from other family firms? Evidence from corporate investments during political uncertainty

Abstract

Using a large sample of Indian family firms, we examine the investment behaviour of group-affiliated family firms versus standalone family firms during local state elections. While state elections negatively affect corporate investments, family firms invest more than non-family firms. Therefore, using a difference-in-difference estimation, we find that group-affiliated family firms invest significantly more than standalone family firms. Additionally, we find no evidence of distortive investments by group-affiliated family firms due to political pressure; rather, it appears that the unique structure allows these firms to make value-relevant investments when other firms adopt a conservative approach. Overall, our study improves the understanding of family firm investments during periods of political uncertainty.