From Cronies to Professionals: The Evolution of Family Firms

CAPITAL FORMATION, GOVERNANCE AND BANKING, Klein E., ed., Financial Institutions and Services, Nova Science Publishers, Hauppauge, NY, 2004

19 Pages Posted: 5 Feb 2005

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

Multiple version iconThere are 2 versions of this paper

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. CAPITAL FORMATION, GOVERNANCE AND BANKING, Klein E., ed., Financial Institutions and Services, Nova Science Publishers, Hauppauge, NY, 2004. Available at SSRN: https://ssrn.com/abstract=645152

Utpal Bhattacharya

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

Clear Water Bay
Kowloon
Hong Kong

B. Ravikumar (Contact Author)

Federal Reserve Bank of Saint Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
363
Abstract Views
1,883
rank
12,548
PlumX Metrics