Agency Costs and Ownership Structure


  • James S. Ang,

  • Rebel A. Cole,

  • James Wuh Lin

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    • Ang is from Florida State University; Cole is from The University of Auckland, New Zealand; and Lin is from Montana State University. We appreciate the comments of David Mauer, Michael Long, René Stulz (the editor), and an anonymous referee.


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.