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An empirical investigation of agency costs and ownership structure in unlisted small businesses

Abstract
The study uses panel data to investigate agency costs, both principal-agent (PA) and principal-principal (PP), in 240 small businesses not listed on the New Zealand Stock Exchange. Results show that both forms of agency cost vary according to industry, the life of the business and size. The results indicate that the degree of owner involvement in the business influences firm PA and PP agency costs. Moreover, this study finds non-linear relationship between agency costs and ownership structure align with convergence of interest hypothesis and managerial entrenchment hypothesis. It is noted that the distortion between equity returns and debt returns gives rise to a preference for quasi-equity and distorts the productive base and effective pricing of risk. The analysis indicates there is considerable variability in the burden of agency cost and that this raises the potential for regulatory and policy reforms that may enhance the productivity and growth in the sector.
Type
Journal Article
Type of thesis
Series
Citation
Wellalage, N. H. & Locke, S. (2012). An empirical investigation of agency costs and ownership structure in unlisted small businesses. New Zealand Journal of Applied Business Research, 10(2), 37-48.
Date
2012
Publisher
Manukau Institute of Technology
Degree
Supervisors
Rights
This article has been published in the journal: New Zealand Journal of Applied Business Research. Used with permission.