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Capital Markets and the Evolution of Family Businesses

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  • Bhattacharya, Utpal
  • Ravikumar, B

Abstract

We model a family business as a household operating a production technology in which the household's human capital is a specific business skill. Each generation 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. 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 are bigger, last longer, and have lower investment rates in economies with less developed primary capital markets. Copyright 2001 by University of Chicago Press.

Suggested Citation

  • Bhattacharya, Utpal & Ravikumar, B, 2001. "Capital Markets and the Evolution of Family Businesses," The Journal of Business, University of Chicago Press, vol. 74(2), pages 187-219, April.
  • Handle: RePEc:ucp:jnlbus:v:74:y:2001:i:2:p:187-219
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