Agency Costs and Ownership Structure
39 Pages Posted: 23 Apr 2007 Last revised: 3 Nov 2008
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: Suggested Citation