Agency Costs of Controlling Minority Shareholders

Posted: 10 Jul 2003

See all articles by Henrik Cronqvist

Henrik Cronqvist

University of Miami - Department of Finance

Mattias Nilsson

U.S. Securities and Exchange Commission


This paper estimates the agency costs of controlling minority shareholders (CMSs), who have control of a firm's votes, while owning only a minority of the cash flow rights. Analyzing a panel of 309 listed Swedish firms during 1991 - 1997, for which we have complete and detailed data on ownership and corporate control instruments, we provide three results: (i) Families employ CMS structures, via dual-class shares and other corporate control instruments, about 1.5 - 2 times more often than other categories of owners (corporations, financial institutions). (ii) Estimated agency costs of controlling shareholders are 6 - 25% of firm value (Tobin's q) for the median firm among the different categories of controlling owners, ceteris paribus. Family CMSs are associated with the largest discount on firm value. (iii) The source of the discount seems to be partly what such owners/firms do: return on assets (ROA) is significantly lower for firms with concentrated vote control. It also seems as if the discount is related to what such owners/firms do not do. Family CMSs seem to hang on to the control too long from non-controlling shareholders' perspective; e.g., firms with family CMSs are about 50% less likely to be taken over compared to other firms.

Keywords: Agency costs, Corporate control, Ownership structures, Corporate governance

JEL Classification: G32, G34

Suggested Citation

Cronqvist, Henrik and Nilsson, Mattias, Agency Costs of Controlling Minority Shareholders. Journal of Financial and Quantitative Analysis Vol. 38, No.4, 2003, Available at SSRN:

Henrik Cronqvist (Contact Author)

University of Miami - Department of Finance ( email )

5250 University Drive
220 Jenkins Building
Coral Gables, FL 33146
United States
(305) 284-9482 (Phone)


Mattias Nilsson

U.S. Securities and Exchange Commission ( email )

United States Securities and Exchange Commission
100 F Street NE
Washington, DC 20549
United States

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