Testing Agency Theory with Entrepreneur Effort and Wealth

Marianne Bitler, Tobias J. Moskowitz and Annette Vissing‐jørgensen
Authors registered in the RePEc Author Service: Annette Vissing-Jorgensen

Journal of Finance, 2005, vol. 60, issue 2, 539-576

Abstract: We develop a principal‐agent model in an entrepreneurial setting and test the model's predictions using unique data on entrepreneurial effort and wealth in privately held firms. Accounting for unobserved firm heterogeneity using instrumental‐variables techniques, we find that entrepreneurial ownership shares increase with outside wealth and decrease with firm risk; effort increases with ownership; and effort increases firm performance. The magnitude of the effects in the cross‐section of firms suggests that agency costs may help explain why entrepreneurs concentrate large fractions of their wealth in firm equity.

Date: 2005
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Citations: View citations in EconPapers (111)

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https://doi.org/10.1111/j.1540-6261.2005.00739.x

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:60:y:2005:i:2:p:539-576

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