Capital Markets and the Evolution of Family Businesses
46 Pages Posted: 5 Feb 1997
Date Written: December 1999
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: G10, D92
Suggested Citation: Suggested Citation