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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, Davis - Departments of Economics and Agricultural Resource Economics; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA)

Annette Vissing-Jorgensen


National Bureau of Economic Research (NBER); University of California Berkeley, Haas School of Business

Tobias J. Moskowitz


AQR Capital; University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)


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.

Number of Pages in PDF File: 54


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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, Davis - Departments of Economics and Agricultural Resource Economics ( email )
United States
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
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
University of California Berkeley, Haas School of Business ( email )
545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
Tobias J. Moskowitz (Contact Author)
AQR Capital ( email )
Greenwich, CT
United States

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)

Chicago Booth School of Business Logo

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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