Family monitoring and the adverse consequences of political connections: does it vary over family generations?

Purpose: This study aims to investigate the impact of family ownership on firm performance. The authors examine whether family ownership in a firm reduces the adverse consequences of political connections on firm performance. Further, the authors analyze whether monitoring benefits of family ownership vary over family generations. Design/methodology/approach: This study examines the financial data from 229 active nonfinancial firms listed on the Pakistan Stock Exchange between 2011 and 2019. First, the authors estimated several panel data regression models after incorporating control variables in the full sample. Second, the authors estimated models in the subsample of family firms for investigating whether the results vary among different generations of family firms. Further, for checking the robustness of the authors’ statistical results, the authors have used two proxies of family ownership and revalidated the findings in several subsamples of the data. Findings: This study finds that family firms financially outperform nonfamily firms. Further, the results suggest that boards with family members tend to enhance monitoring and governance mechanisms which reduce the harmful effects of political connections. Finally, this study finds that the monitoring benefits of family ownership which reduce the adverse effects of political connections on family firm performance diminishes over generations. Originality/value: First, this study provides evidence of whether the monitoring benefits of family ownership reduce the adverse effects of political connections on firm performance. Second, to the best of the authors’ knowledge, no prior study provides evidence whether first-generation family firms are superior in monitoring and ultimately reducing the negative effects of political connections.