Agency costs of vertical integration-the case of family firms, investor-owned firms and cooperatives in the French wine industry

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.