Managerial Ownership Dynamics and Firm Value
Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute
René M. Stulz
Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)
ECGI - Finance Working Paper No. 182/2007
Journal of Financial Economics (JFE), Forthcoming
Ohio State University, Fisher College of Business Working Paper No. 2007-03-013
Charles A. Dice Center Working Paper No. 2007-12
From 1988 to 2003, the average change in managerial ownership is significantly negative every year for American firms. We find that managers are more likely to significantly decrease their ownership when their firms are performing well and more likely to increase their ownership when their firms become financially constrained. When controlling for past stock returns, we find that large increases in managerial ownership increase q. This result is driven by increases in shares held by officers, while increases in shares held by directors appear unrelated to changes in firm value. There is no evidence that large decreases in ownership have an adverse impact on firm value. We rely on the dynamics of the managerial ownership/firm value relation to mitigate concerns in the literature about the endogeneity of managerial ownership.
Number of Pages in PDF File: 49
Keywords: Firm valuation, director and officer ownership, ownership dynamics
JEL Classification: G30, G32
Date posted: June 22, 2007 ; Last revised: September 27, 2010
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