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Partnership Firms, Reputation and Human Capital

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  • Alan Morrison

    ()

  • William J. Wilhelm, Jr.

    ()

Abstract

In human capital intensive industries where it is difficult to contract upon the training effort of skilled agents a socially suboptimal level of training may occur. We show how partnership organisations can overcome this problem by tying human and financial capital. Partnerships are opaque so that the willingness of clients to pay depends upon reputation. Partnerships are illiquid and partners must stay with the firm until clients discover their type and update the firm's reputation. This renders unskilled agents, who will aversely affect reputation, unwilling to accept partnerships. Skilled agents therefore train the next generation so as to ensure that there is an adequate market for their own shares. We comment upon the salient differences between partnerships and joint stock firms.

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Bibliographic Info

Paper provided by Oxford Financial Research Centre in its series OFRC Working Papers Series with number 2003fe02.

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Date of creation: 2003
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Handle: RePEc:sbs:wpsefe:2003fe02

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Web page: http://www.finance.ox.ac.uk
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Keywords: Partnership; on-the-job training; human capital; collective reputation;

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Cited by:
  1. Alessandro Bonatti & Johannes Horner, 2011. "Career Concerns with Coarse Information," Cowles Foundation Discussion Papers 1831, Cowles Foundation for Research in Economics, Yale University, revised Jan 2012.
  2. Agnieszka Rak, 2013. "Brand and Corporate Image of a Sport Organization as a Factor of Building Loyalty," Diversity, Technology, and Innovation for Operational Competitiveness: Proceedings of the 2013 International Conference on Technology Innovation and Industrial Management, ToKnowPress.
  3. Costa, Luis Almeida e & Vasconcelos, Luis, 2008. "Share the Fame or Share the Blame? The Reputational Implications of Partnerships," FEUNL Working Paper Series wp539, Universidade Nova de Lisboa, Faculdade de Economia.
  4. Sevilir, Merih, 2010. "Human capital investment, new firm creation and venture capital," Journal of Financial Intermediation, Elsevier, vol. 19(4), pages 483-508, October.
  5. Peter Bardsley & Nisvan Erkal & Nikos Nikiforakis & Tom Wilkening, 2011. "Recursive Contracts, Firm Longevity, and Rat Races: Theory and Experimental Evidence," Department of Economics - Working Papers Series 1122, The University of Melbourne, revised 2011.
  6. Demirguc-Kunt, Asli & Love, Inessa & Maksimovic, Vojislav, 2004. "Business Environment and the Incorporation Decision," Policy Research Working Paper Series 3317, The World Bank.
  7. C Green & J S Heywood, 2007. "Does profit sharing increase training by reducing turnover?," Working Papers 589032, Lancaster University Management School, Economics Department.
  8. Alessandro Bonatti & Johannes Horner, 2012. "Career Concerns with Coarse Information," Levine's Working Paper Archive 786969000000000342, David K. Levine.

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