Agency Costs and Ownership Structure

James S. K. Ang · Rebel A. Cole · James Wuh Lin

2,517 citations0/0 files storedThe Journal of Finance

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Corporate Finance and Governance Auditing, Earnings Management, Governance Family Business Performance and Succession

Abstract

We provide measures of absolute and relative equity agency costs for corporations under different ownership and management structures. Our base case is Jensen and Meckling's (1976) zero agency‐cost firm, where the manager is the firm's sole shareholder. We utilize a sample of 1,708 small corporations from the FRB/NSSBF database and find that agency costs (i) are significantly higher when an outsider rather than an insider manages the firm; (ii) are inversely related to the manager's ownership share; (iii) increase with the number of nonmanager shareholders, and (iv) to a lesser extent, are lower with greater monitoring by banks.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1983Separation of Ownership and Control 1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1996Agency costs of free cash flow, corporate finance, and takeovers 1986Large Shareholders and Corporate Control 1985The Structure of Corporate Ownership: Causes and Consequences 1983Agency Problems and Residual Claims 1997Trade Credit: Theories and Evidence

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