Abstract

http://ssrn.com/abstract=306130
 
 

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From Cronies to Professionals: The Evolution of Family Firms


Utpal Bhattacharya


Indiana University - Department of Finance

B. Ravikumar


Federal Reserve Bank of Saint Louis

January 2004


Abstract:     
We develop a dynamic model where each generation in a family can continue operating its inherited production technology or it could hire a professional to do the same. Though the professional is more qualified, his interests are not aligned with the interests of the family. In the context of an overlapping generations framework, we analyze how this tradeoff affects the evolution of the family firm. We find that family firms initially grow in size by accumulating capital and later professionalize their management after reaching a critical size.

Number of Pages in PDF File: 19

Keywords: Family business, agency theory, corporate governance

JEL Classification: G30, F30, J41

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Date posted: April 19, 2002  

Suggested Citation

Bhattacharya , Utpal and Ravikumar, B., From Cronies to Professionals: The Evolution of Family Firms (January 2004). Available at SSRN: http://ssrn.com/abstract=306130 or http://dx.doi.org/10.2139/ssrn.306130

Contact Information

Utpal Bhattacharya (Contact Author)
Indiana University - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3413 (Phone)
812-855-5875 (Fax)
HOME PAGE: http://www.kelley.iu.edu/ubhattac/
B. Ravikumar
Federal Reserve Bank of Saint Louis ( email )
411 Locust St
Saint Louis, MO 63011
United States
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