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Optimal ownership structure and monitoring in entrepreneurial firms

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  • Loyola, Gino
  • Portilla, Yolanda

Abstract

We model the agency problem existing in an entrepreneurial firm between its founder and an outside investor and characterize the optimal corporate governance design. The analysis describes the relationship between two mechanisms: the level of monitoring exerted by the outside investor (short-run) and the ownership structure designed by the founder (long-run). Our results suggest that the optimal corporate governance design resembles a multiple large shareholders (MLS) structure in which a large investor counterbalances the power of the controlling owner. We derive testable implications regarding the separation between control and cash-flow rights and other firm-specific elements influencing the optimal governance structure.

Suggested Citation

  • Loyola, Gino & Portilla, Yolanda, 2020. "Optimal ownership structure and monitoring in entrepreneurial firms," Finance Research Letters, Elsevier, vol. 33(C).
    • Handle: RePEc:eee:finlet:v:33:y:2020:i:c:s1544612318302496
    DOI: 10.1016/j.frl.2019.06.005
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    References listed on IDEAS

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    Cited by:

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    2. Maria Aluchna & Tomasz Kuszewski, 2020. "Does Corporate Governance Compliance Increase Company Value? Evidence from the Best Practice of the Board," JRFM, MDPI, vol. 13(10), pages 1-21, October.

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    More about this item

    Keywords

    Corporate governance; Multiple large shareholders structure; Agency problem; Monitoring;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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