Agency Costs and Firm Productivity
35 Pages Posted: 15 Nov 2019
Date Written: November 6, 2019
We explore how the separation between ownership and control affects firm productivity. Using Finnish administrative data on the universe of limited liability firms, we document a substantial increase in firm productivity when the CEO obtains majority ownership or when the majority owner becomes the CEO. We exploit plausibly exogenous variations to ownership and control, induced for example by shocks to the CEO spouse's health. Extending the analysis beyond typical samples of large public firms, we show that our effects are stronger in medium-sized private firms. We also investigate possible mechanisms and provide suggestive evidence that increased ownership boosts CEO's effort at work.
Keywords: agency costs, firm productivity, CEO ownership
JEL Classification: G30, M12, D24, E23, L25
Suggested Citation: Suggested Citation