Capital markets and the evolution of family businesses

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 n ext generation or sell the business through a financial intermediary and be queath the revenue. Using a dynamic model, we analyze how the imperfections in primary capital markets affect the evolution of family businesses. Whet her recourse to external financing exists or not, our model predicts that f amily businesses are bigger, last longer, and have lower investment rates i n economies with less developed primary capital markets.