63 Pages Posted: 22 Aug 2012
Date Written: 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.
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
Suggested Citation: Suggested Citation
Sokolyk, Tatyana and Bradford, William, Ownership Structure and Performance of Closely Held Young Firms (July 1, 2012). Available at SSRN: https://ssrn.com/abstract=2133205 or http://dx.doi.org/10.2139/ssrn.2133205