From Cronies to Professionals: The Evolution of Family Firms

Utpal Bhattacharya () and B Ravikumar

MPRA Paper from University Library of Munich, Germany

Abstract: We develop a dynamic model where each generation in a family firm 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 firms; Cronies; Moral Hazard (search for similar items in EconPapers)
JEL-codes: D21 D86 (search for similar items in EconPapers)
Date: 1997-11, Revised 2004-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:22939

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