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Vertical and Horizontal Agency Problems in Private Firms: Ownership Structure and Operating Performance

Published online by Cambridge University Press:  02 July 2021

Sridhar Gogineni ,
Scott C. Linn Open the ORCID record for Scott C. Linn [Opens in a new window]  and
Pradeep K. Yadav
Sridhar Gogineni
Affiliation:
Department of Finance, Sykes College of Business gpgi, University of Tampasgogineni@ut.edu
Scott C. Linn*
Affiliation:
Division of Finance, Price College of Business, University of Oklahoma
Pradeep K. Yadav
Affiliation:
Division of Finance, Price College of Business, University of Oklahoma and University of Cologne Centre for Financial Researchpyadav@ou.edu
*
slinn@ou.edu (corresponding author)
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Abstract

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We investigate how ownership structure influences operating performance and implied agency costs. Our sample includes over 42,000 U.K. private and public firms. We document several new results of considerable economic significance relating to i) horizontal agency costs arising from unequal ownership within private firms, ii) amplification of agency costs from joint presence within the same firm of horizontal agency problems and vertical agency problems arising from separation of ownership and control, iii) mitigation in agency costs wrought by a second large shareholder, iv) impact of complex ownership structures, and v) agency cost differences between public firms and comparable private firms.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 57 , Issue 4 , June 2022 , pp. 1237 - 1278
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0/), which permits unrestricted re-use, distribution, and reproduction in any medium, provided the original work is properly cited.
Copyright
© The Author(s), 2021. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

The authors thank Margaret Blair, Bhagwan Chowdhry, Rebel Cole, Espen Eckbo, Louis Ederington, Fabrizio Ferri, Alan Gregory, Ravi Jagannathan, Colin Mayer, John McConnell, Kasper Meisner Nielsen, Takeshi Nishikawa, Frank Partnoy, Richard Roll, Randall Thomas, Wayne Thomas, and Ralph Walkling, and seminar or conference participants at the Indian School of Business, European Centre for Corporate Control Studies, Financial Management Association Annual Meeting, INFINITI Conference, 17th New Zealand Finance Colloquium, Front Range Finance Conference, Exeter University, Hebrew University of Jerusalem, Texas Christian University, University of Missouri, University of Oklahoma, University of Sydney, and Vanderbilt Law School. An earlier version of this article was circulated under the title “Vertical and Horizontal Agency Costs: Evidence from Public and Private Firms.” The authors remain responsible for all errors.

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