White Paper Overview: Small Business Owners Should Maintain Control
A new study shows that family-owned small businesses have fewer fraud and cost problems than big companies, or other small companies with outside managers.
The white paper, produced under a contract with the Small Business Administration's Office of Advocacy, stated that owners that manage their own businesses keep costs down effectively. When outside managers are hired, and more authority is delegated, costs can increase, as can the risk of fraud.
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The white paper, “Agency Costs and Ownership Structure: Evidence from the Small Business Finance Survey Data Base,” lays out some implications for small-business owners. “Because owner-managers are the most effective mechanism for eliminating agency costs, it is important for owners of small firms to participate actively in investment and financial decision-making.”
The author, Jacky Yuk-Chow So, of Texas A & M International University, continued, “To reduce the associated agency costs, corporate control mechanisms involving family members and/or banking relationships should be established to monitor the behavior of the nonowner managers. Otherwise, the Wall Street scandals that plagued the Fortune 500 companies may become a reality for the small firm.”
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