Agency Costs and Ownership Structure

39 Pages Posted: 23 Apr 2007 Last revised: 3 Nov 2008

See all articles by James S. Ang

James S. Ang

Florida State University; Florida State University - College of Law

Rebel A. Cole

Florida Atlantic University

James W Lin

Montana State University - Bozeman - College of Business

Abstract

We provide measures of absolute and relative equity agency costs for corporations under different ownership and management structures. Our base case is Jensen and Meckling's (1976) zero agency-cost firm, where the manager is the firm's sole shareholder. We utilize a sample of 1,708 small corporations from the FRB/NSSBF database and find that agency costs (i) are significantly higher when an outsider rather than an insider manages the firm; (ii) are inversely related to the manager's ownership share; (iii) increase with the number of nonmanager shareholders, and (iv) to a lesser extent, are lower with greater monitoring by banks.

Keywords: agency costs, bank monitoring, ownership structure,

JEL Classification: G32, G34

Suggested Citation

Ang, James S. and Cole, Rebel A. and Lin, James W, Agency Costs and Ownership Structure. Journal of Finance, Vol. 55, No. 1, February 2000. Available at SSRN: https://ssrn.com/abstract=981268

James S. Ang

Florida State University ( email )

College of Business
Tallahassee, FL 32306-1042
United States
904-644-8208 (Phone)

Florida State University - College of Law ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States

Rebel A. Cole (Contact Author)

Florida Atlantic University ( email )

College of Business
777 Glades Road
Boca Raton, FL 33431
United States
1-561-297-4969 (Phone)

HOME PAGE: http://rebelcole.com

James W Lin

Montana State University - Bozeman - College of Business ( email )

446 Reid Hall
Bozeman, MT 59715
United States

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