DP11243 Agency Conflicts Around the World

Author(s): Erwan Morellec, Boris Nikolov, Norman Schürhoff
Publication Date: April 2016
Keyword(s): agency conflicts, Capital Structure, corporate governance, structural estimation
JEL(s): G32, G34
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11243

We use a dynamic model of financing decisions to quantify agency conflicts across legal and institutional environments and decompose their effects into wealth transfers among stakeholders and value losses from policy distortions. Our estimates show that agency costs are large and vary widely across and within countries. Legal origin and provisions for investor protection affect agency costs, but they are more relevant for curtailing governance excesses than guarding the typical firm. Agency costs split about equally into wealth transfers and value losses from policy distortions, the latter being larger where ownership is dispersed. Incentive misalignment captures 60% of country variation in leverage.