Ownership Structure and Performance of Closely Held Young Firms
affiliation not provided to SSRN
July 1, 2012
This study documents that manager-shareholder conflict plays an important role at the earliest stage of business formation. Using data on closely held start-up firms, we focus on the owner who has the greatest managerial responsibility in the firm. Controlling for the endogenous relation between the initial equity ownership by the owner-manager and firm performance, we find that increased equity ownership by the owner who actively managers the firm results in better firm performance. In contrast, the owner-manager’s personal contribution of debt and the share of personal wealth invested in the firm are negatively related to firm performance. This evidence is consistent with the idea that start-ups with poor performance prospects are unable to raise funds externally and, instead, rely on internal capital.
Number of Pages in PDF File: 63
Keywords: agency theory, managerial ownership, closely held firms, entrepreneurship, Kauffman Firm Survey (KFS), Survey of Small Business Finances (SSBF)
JEL Classification: G30, G32, G34, L26
Date posted: August 22, 2012
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