The effects of agency problems on the financial behavior, performance, and efficiency of German industrial stock corporations

Using a catalog of seven agency problem identifier variables such as block ownership and market segment traded in, 237 German industrial stock corporations are analyzed for the time period 1986-1992. Five sectors are also analyzed separately. Agency-problem related differences in financial behavior, performance, and cost efficiency are tested for using t-tests for mean differences and logistic regressions. The cost efficiency is estimated via stochastic maximum likelihood frontier functions. Manager-controlled firms prefer free cash flows as predicted. Owners favor debt and avoid new stock issues. Contrary to theory, manager-controlled companies do not show a poorer performance than owner-controlled firms. They do, however, operate more inefficiently than firms controlled by owners.