Agency costs and ownership structure in Australia

Financial economics often assumes that equity agency costs increase with the separation of ownership and control. This paper tests this relationship using a survey sample of approximately 3800 Australian small and medium enterprises for 1996-1997 and 1997-1998. Following Ang et al. [J. Finance 55 (2000) 81], we estimate a zero equity agency cost benchmark (in terms of operating expenses and asset utilization ratios) for the 100% owner-manager firm. We then examine how agency costs change when ownership and control are separated. We report a positive relationship between equity agency costs and the separation of ownership and control.