FAMILY FIRMS PRE- AND POST-COVID: PRIVATE BENEFITS AND COMPETITIVE ADVANTAGE

Abstract

Family firms largely dominate the corporate landscape in Pakistan. This study investigates the factors driving family control, testing two main theories: competitive advantage and private benefits. The competitive advantage theory suggests that all shareholders benefit from family control, while the private benefits theory implies that family shareholders extract profits at the expense of external investors. Drawing from Villalonga and Amit (2010), this paper empirically examines these theories in the context of Pakistan, both before and after the COVID-19 pandemic. The results indicate that family-owned and controlled firms consistently outperformed non-family firms, evidenced by a positive and significant relationship between expected and actual EBITDA, supporting the competitive advantage theory. Family firms have been resilient through the COVID-19 crisis maintaining strong performance and continuing to trade at a premium compared to non-family firms. Key factors such as industry transparency, market risk, idiosyncratic risk, number of firms, debt-to-assets ratio, and skilled employment significantly influence the likelihood of family ownership.