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Agency Costs in Small Firms

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  • Bianchi, Milo
  • Luomaranta, Henri

Abstract

We explore how the separation between ownership and control a§ects Örm productivity. Using administrative panel data on the universe of limited liability Örms in Finland, we document a substantial increase in productivity when the CEO obtains majority ownership or when the majority owner becomes the CEO. We exploit plausibly exogenous variations to CEO turnover, induced by shocks to the CEO spouseís health. Extending the analysis beyond typical samples of large public Örms, we show that our e§ects are stronger in medium-sized private Örms. We also investigate possible mechanisms and provide suggestive evidence that increased ownership boosts CEOís e§ort at work.

Suggested Citation

  • Bianchi, Milo & Luomaranta, Henri, 2021. "Agency Costs in Small Firms," TSE Working Papers 21-1252, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:125982
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    References listed on IDEAS

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    More about this item

    Keywords

    agency costs; Örm productivity; CEO ownership.;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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