Capital Markets and the Evolution of Family Businesses

Posted: 11 Feb 2000

See all articles by Utpal Bhattacharya

Utpal Bhattacharya

Hong Kong University of Science & Technology (HKUST) - HKUST School of Business and Management

B. Ravikumar

Federal Reserve Bank of Saint Louis

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Abstract

This paper models a family business as a household operating a production technology in which the household's human capital is a specific business skill. Each generation in the household can either bequeath the business and the business skill to the next generation, or sell the business through a financial intermediary and bequeath the revenue to the next generation. Using a dynamic model, we analyze how the imperfections in primary capital markets affect the evolution of family businesses. Whether recourse to external financing exists or not, our model predicts that family businesses will tend to be bigger and last longer in economies with less developed primary capital markets.

JEL Classification: D92, G10

Suggested Citation

Bhattacharya, Utpal and Ravikumar, B., Capital Markets and the Evolution of Family Businesses. Journal of Business, April 2001. Available at SSRN: https://ssrn.com/abstract=204812

Utpal Bhattacharya (Contact Author)

Hong Kong University of Science & Technology (HKUST) - HKUST School of Business and Management ( email )

Clear Water Bay
Kowloon
Hong Kong

B. Ravikumar

Federal Reserve Bank of Saint Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

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