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Agency costs of vertical integration—the case of family firms, investor‐owned firms and cooperatives in the French wine industry
Author(s) -
Cadot Julien
Publication year - 2015
Publication title -
agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.29
H-Index - 82
eISSN - 1574-0862
pISSN - 0169-5150
DOI - 10.1111/agec.12150
Subject(s) - vertical integration , agency (philosophy) , agency cost , industrial organization , incentive , horizontal and vertical , business , horizontal integration , economics , econometric analysis , work (physics) , microeconomics , marketing , finance , macroeconomics , corporate governance , philosophy , epistemology , shareholder , mechanical engineering , geodesy , engineering , geography
Vertical integration theory has long suggested internal costs related to changes in incentives due to vertical integration, which means that vertical integration may lead to agency costs. In this work, we specify the notion of agency costs of vertical integration and extend Ang et al. (2000)'s measurement of agency costs to provide an empirical assessment of these costs in the French wine industry. Our econometric analysis finds that the agency costs of vertical integration may reach 2–3% of sales. It also showed that operating expenses of vertical integration are lower for cooperatives than for other firms, while vertical integration is less rewarding for them. This raises questions on the relation between agency costs in cooperatives and their performance.