Close Corporations and Agency Costs

Abstract

The economic analysis of publicly held corporations has exploded in recent years.'Yet there has been little attention to the more common corporate form of organization, the closely held corporation. 2This is not because one analysis will cover both.There is a fundamental difference between closely and publicly held corporations.Risk bearing and management are separated in publicly held but not in closely held corporations.The presence or absence of this separation of functions determines the governance mechanisms that have evolved in the two types of firms.3 One central problem in the academic work on closely held corporations is the extent of conflicts of interest.Some econo-