Ownership dynamics and agency costs: Evidence from Finnish small businesses

Abstract

Using data of Finnish small private limited liability companies from 2022, I identify the impact of ownership structure on agency costs, proxying agency costs using two ratios derived from companies’ financial statements. I find that companies with a non-owner manager suffer from higher agency costs compared to those in which a manager owns company’s shares, and agency costs tend to increase as the manager’s ownership decreases. Additionally, I discover that agency costs increase as the number of nonmanager shareholders increases.