Agency Costs and Ownership Structure

James S. Ang, Rebel A. Cole () and James Wuh Lin
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James S. Ang: Florida State University,
James Wuh Lin: Montana State University

Journal of Finance, 2000, vol. 55, issue 1, pages 81-106

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. Copyright The American Finance Association 2000.

Date: 2000
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