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

54 Pages Posted: 17 Dec 2002  

Marianne P. Bitler

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

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)

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.

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: https://ssrn.com/abstract=352480 or http://dx.doi.org/10.2139/ssrn.352480

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

IZA Institute of Labor Economics

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)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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