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Agency Conflicts Around the World

We construct firm-level indexes for agency conflicts between controlling shareholders and outside investors by estimating a dynamic model of financing decisions. Our estimates for 12,652 firms from 14 countries show that agency conflicts are large and highly variable across firms and countries. Differences in agency conflicts are largely due to differences in firm-level governance, ownership concentration, and other firm characteristics. The origin of law is more relevant for curtailing governance excesses than for guarding the typical firm. Agency costs split about equally between wealth transfers and value losses from policy distortions. Recent governance reforms in Europe have significantly reduced agency costs.Received April 19, 2016; editorial decision November 18, 2017 by Received April 19, 2016; editorial decision November 18, 2017 by Editor Francesca Cornelli. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.