The concentration of promoters’ shareholding has been increasing in the family firms, according to a study conducted by the Indian School of Business (ISB).
The study, titled ‘Family Businesses: Promoters’ Skin in the Game 2001-2017’ was conducted by the Thomas Schmidheiny Centre for Family Enterprise at ISB.
While the concentration of promoters’ shareholding is decreasing in non-family firms, it is increasing in the family firms.
“By steadily increasing their shareholding in the firm, the promoters of family firms, both family business group firms (FBGFs) and standalone family firms (SFFs), were signalling their growing confidence in the potential of their company,” it said.
The promoter stake in State Owned Enterprises (SOEs), however, has been steadily falling over the past decade. This is in line with the policies of the successive governments in India to divest their holding in the SOEs.
Other business group firms (OBGFs) and standalone non-family firms (NFs) have also witnessed a decrease in promoter shareholding.
In FBGFs, the preferred mode to hold shares is through holding companies, while in SFFs the family members prefer to hold shares directly as individuals or Hindu Undivided Family (HUF).
As per the study, non-promoter institutional shareholding is lower in family firms when compared with non-family firms and it has decreased further between 2007 to 2017.
“Except NFs, our study shows a decline in the shareholding of non-promoter non-institutional shareholders. It suggests that investors’ preferences might have further shifted to alternative asset classes like real estate, gold, and fixed deposits or they might be investing through institutional investors like the mutual funds,” ISB said.
The research was conducted by Nupur Pavan Bang, Kavil Ramachandran and Anierudh Vishwanathan of the Thomas Schmidheiny Centre and Sougata Ray of IIM Calcutta.
It was based on an analysis of trends in equity ownership by various classes of shareholders for 4,615 firms listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) of India, across different ownership categories for the period 2001- 2017.