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Do Banks Price Owner–Manager Agency Costs? An Examination of Small Business Borrowing

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  • James C. Brau

Abstract

Ang, Cole, and Lin (2000) provide evidence that supports the theoretical work of Jensen and Meckling (1976) on agency costs. As a further examination, I conduct a test to determine the economic significance of owner–manager agency conflicts. Using the same data source and empirical framework as Ang, Cole, and Lin (2000), I test to determine if banks charge a premium when extending loans to firms with various ownership structures. In empirical tests, I find that banks do not require an owner–manager agency premium either through increased interest rates or through the requirement of collateral. Instead, I find that the interest rate is significantly affected by the length of the longest banking relationship, the number of banking relationships, firm age, and firm size. Additionally, the requirement of collateral is significantly affected by the number of banking relationships, the debt position of the firm, and firm size.

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  • James C. Brau, 2002. "Do Banks Price Owner–Manager Agency Costs? An Examination of Small Business Borrowing," Journal of Small Business Management, Taylor & Francis Journals, vol. 40(4), pages 273-286, October.
    • Handle: RePEc:taf:ujbmxx:v:40:y:2002:i:4:p:273-286
    DOI: 10.1111/1540-627X.00057
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    Cited by:

    1. Sánchez-Ballesta, Juan Pedro & Yagüe, José, 2023. "Tax avoidance and the cost of debt for SMEs: Evidence from Spain," Journal of Contemporary Accounting and Economics, Elsevier, vol. 19(2).

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