From Cronies to Professionals: The Evolution of Family Firms

19 Pages Posted: 19 Apr 2002  

Utpal Bhattacharya

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

B. Ravikumar

Federal Reserve Bank of Saint Louis

Multiple version iconThere are 2 versions of this paper

Date Written: 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.

Keywords: Family business, agency theory, corporate governance

JEL Classification: G30, F30, J41

Suggested Citation

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

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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