Working paper

Agency Costs in Small Firms

Milo Bianchi, and Henri Luomaranta


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.


agency costs; Örm productivity,; CEO ownership.;

JEL codes

  • G30: General
  • M12: Personnel Management • Executives; Executive Compensation
  • D24: Production • Cost • Capital • Capital, Total Factor, and Multifactor Productivity • Capacity
  • E23: Production
  • L25: Firm Performance: Size, Diversification, and Scope


Milo Bianchi, and Henri Luomaranta, Agency Costs in Small Firms, TSE Working Paper, n. 21-1252, August 2021.

See also

Published in

TSE Working Paper, n. 21-1252, August 2021