From Cronies to Professionals: The Evolution of Family Firms

Bhattacharya , Utpal; Ravikumar, B.

doi:10.2139/ssrn.306130

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From Cronies to Professionals: The Evolution of Family Firms

19 Pages Posted: 19 Apr 2002

See all articles by Utpal Bhattacharya

B. Ravikumar

Federal Reserve Bank of St. Louis; Federal Reserve Bank of Saint Louis

There 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: Suggested Citation

Bhattacharya, Utpal and Ravikumar, B. 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