Effects of family ownership and management on small business equity financing

Equity financing is important in financing growth but its special features in small business have not been well addressed in the finance or entrepreneurship literature. Since many small firms have family involvement and research shows that family firms have both advantages and disadvantages in managing agency costs, how family involvement and agency issues interact to affect equity financing in small business is an important topic of research. This study examines the effects of family ownership and management on two dimensions of small business equity financing, the use of equity financing and the use of public equity financing within the agency theory of financing. The results show that family involvement and agency issues interactively and separately influence equity financing in small business.     

The Ability and Willingness Paradox in Family Firm Innovation

We present a framework of how family involvement influences innovation management based on ability (discretion to act) and willingness (disposition to act), two drivers that distinguish family firms from nonfamily firms and lead to heterogeneity among family firms. Paradoxically, family firms have superior ability yet lower willingness to engage in technological innovation. Resolving this paradox should yield new insights about innovation management in general. We summarize and position the papers in this special issue according to these drivers and set out an agenda for further research that will contribute to a better understanding of family firms' heterogeneous and paradoxical behaviors.     

Catch-up and fall-back through innovation and imitation

Will fast growing emerging economies sustain rapid growth rates until they “catch-up” to the technology frontier? Are there incentives for some developed countries to free-ride off of innovators and optimally “fall-back” relative to the frontier? This paper models agents growing as a result of investments in innovation and imitation. Imitation facilitates technology diffusion, with the productivity of imitation modeled by a catch-up function that increases with distance to the frontier. The resulting equilibrium is an endogenous segmentation between innovators and imitators, where imitating agents optimally choose to “catch-up” or “fall-back” to a productivity ratio below the frontier.     

Indeterminacy and cycles in two-sector discrete-time model

Summary. We consider a discrete-time two-sector Cobb-Douglas economy with positive sector specific external effects. We show that indeterminacy of steady states and cycles can easily arise with constant or decreasing social returns to scale, and very small market imperfections. This is in sharp contrast with most of the contributions in the literature in which increasing social returns are required to generate indeterminacy. Received: July 31, 2000; revised version: June 5, 2001     

Modeling internal commitment mechanisms and self-control: A neuroeconomics approach to consumption–saving decisions

We provide a new model of consumption–saving decisions which explicitly allows for internal commitment mechanisms and self-control. Agents have the ability to invoke either automatic processes that are susceptible to the temptation of ‘over-consuming,’ or alternative control processes which require internal commitment but are immune to such temptations. Standard models in behavioral economics ignore such internal commitment mechanisms. We justify our model by showing that much of its construction is consistent with dynamic choice and cognitive control as they are understood in cognitive neuroscience.The dynamic consumption–saving behavior of an agent in the model is characterized by a simple consumption–saving goal and a cut-off rule for invoking control processes to inhibit automatic processes and implement the goal. We discuss empirical tests of our model with available individual consumption data and we suggest critical tests with brain-imaging and experimental data.     

Social conflict and growth

Despite the predictions of the neoclassical theory of economic growth, we observe that poor countries have invested at lower rates and have not grown faster than rich countries. To explain these empirical regularities we provide a game-theoretic model of conflict between social groups over the distribution of income. Among all possible equilibria, we concentrate on those that are on the constrained Pareto frontier. We study how the level of wealth and the degree of inequality affects growth. We show how lower wealth can lead to lower growth and even to stagnation when the incentives to domestic accumulation are weakened by redistributive considerations.