Agency Costs and the Size Discount: Evidence from Acquisitions

21 Pages Posted: 1 Dec 2010 Last revised: 29 Oct 2012

See all articles by David Offenberg

David Offenberg

Loyola Marymount University - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: September 2, 2010

Abstract

Many scholars have found a negative relationship between a firm’s size and its value, as measured by Tobin’s q. This result is called the size discount. There are hypotheses about why the size discount exists, but none have been rigorously empirically tested. This paper argues that the size discount is created by the inability of shareholders to minimize agency costs in larger companies. Statistical tests suggest that the size discount only appears in large firms with managers that impose excessive agency costs upon their shareholders. Empiricists who use Tobin’s q to proxy for growth opportunities may need a different proxy.

Keywords: Agency costs, size discount, acquisitions, corporate governance

Suggested Citation

Offenberg, David, Agency Costs and the Size Discount: Evidence from Acquisitions (September 2, 2010). Journal of Economics, Finance & Administrative Science, Vol. 15, No. 29, 2010, Available at SSRN: https://ssrn.com/abstract=1717999

David Offenberg (Contact Author)

Loyola Marymount University - Department of Finance ( email )

1 LMU Dr.
MS 8385
Los Angeles, CA 90045
United States

HOME PAGE: http://cba.lmu.edu/faculty?expert=david.offenbergphd

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
75
Abstract Views
547
Rank
390,441
PlumX Metrics