Ownership Structure And Market Valuation: The Case Of Very Small, Young, And Fast-Growing Firms

Abstract

In studies of primarily large, established firms, researchers find that increasing managerial ownership increases firm value, at least in some ranges of ownership.  This evidence suggests that increasing managerial ownership can decrease net agency costs.  Our study investigates managerial ownership and firm value for an atypical sample: very small, young, and fast-growing firms.  We argue that increasing managerial ownership likely increases net agency costs in small, entrepreneurial firms.  Consistent with this argument, we find that entrepreneurial firm value is positively related to outside board member ownership, but negatively related to inside board member ownership.