Performance Consequences of Mandatory Increases in Executive Stock Ownership
John E. Core
Massachusetts Institute of Technology (MIT) - Sloan School of Management
David F. Larcker
Stanford University - Graduate School of Business
Journal of Financial Economics, Forthcoming
We examine a sample of firms that adopt "target ownership plans," under which managers are required to own a minimum amount of stock. We find that prior to plan adoption, such firms exhibit low managerial equity ownership and low stock price performance. Managerial equity ownership increases significantly in the two years following plan adoption. We also observe that excess accounting returns and stock returns are higher after the plan is adopted. Thus, for our sample of firms, the required increases in the level of managerial equity ownership result in improvements in firm performance.
Keywords: Managerial ownership; Corporate governance; Financial performance
JEL Classification: G30, G32, J33, L14, L22
Date posted: November 24, 2001
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