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http://ssrn.com/abstract=352480
 
 

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Why Do Entrepreneurs Hold Large Ownership Shares? Testing Agency Theory Using Entrepreneur Effort and Wealth


Marianne P. Bitler


University of California-Irvine - Department of Economics; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA)

Annette Vissing-Jorgensen


Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER)

Tobias J. Moskowitz


University of Chicago - Booth School of Business


CRSP Working Paper No. 544

Abstract:     
We augment the standard principal-agent model to accommodate an entrepreneurial setting, where effort, ownership, and firm size are determined endogenously. We test the model's predictions (some novel) using new data on entrepreneurial effort and wealth. Accounting for unobserved firm heterogeneity using instrumental variables, we find entrepreneurial ownership shares increase with outside wealth, decrease with firm risk, and decrease with firm size; effort increases with ownership and size; and both ownership and effort increase firm performance. The magnitutde of the effects in the cross-section of firms suggests that agency theory is important for explaining the large average ownership shares of entrepreneurs.

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Date posted: December 17, 2002  

Suggested Citation

Bitler, Marianne P. and Vissing-Jorgensen, Annette and Moskowitz, Tobias J., Why Do Entrepreneurs Hold Large Ownership Shares? Testing Agency Theory Using Entrepreneur Effort and Wealth. CRSP Working Paper No. 544. Available at SSRN: http://ssrn.com/abstract=352480 or http://dx.doi.org/10.2139/ssrn.352480

Contact Information

Marianne P. Bitler
University of California-Irvine - Department of Economics ( email )
3151 Social Science Plaza
Irvine, CA 92697-5100
United States
HOME PAGE: http://www.socsci.uci.edu/~mbitler
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
Annette Vissing-Jorgensen
Northwestern University - Kellogg School of Management ( email )
Department of Finance
2001 Sheridan Road
Evanston, IL 60208-2001
United States
HOME PAGE: http://www.kellogg.northwestern.edu/faculty/vissing/htm/research1.htm
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Tobias J. Moskowitz (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-2757 (Phone)
773-702-0458 (Fax)
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