Why Managers Hold Shares of Their Firm: An Empirical Analysis

40 Pages Posted: 19 Mar 2008

See all articles by Ulf von Lilienfeld-Toal

Ulf von Lilienfeld-Toal

Luxembourg School of Finance

Stefan Ruenzi

University of Mannheim - Department of International Finance

Date Written: September 2007

Abstract

We examine the relationship between CEO ownership and stock market performance. Firms in which the CEO voluntarily holds a considerable share of outstanding stocks outperform the market by more than 10 percent p.a. after controlling for traditional risk factors. The effect is most pronounced in firms that are characterized by large managerial discretion of the CEO. The abnormal returns we document are one potential explanation why so many CEOs hold a large fraction of their own company's stocks. We also examine several potential explanations why the existence of an owner CEO is not fully reflected in prices but leads to abnormal returns.

Keywords: CEO-Ownership, Asset Pricing, Large Shareholders

JEL Classification: G12, G30

Suggested Citation

Lilienfeld-Toal, Ulf von and Ruenzi, Stefan, Why Managers Hold Shares of Their Firm: An Empirical Analysis (September 2007). Available at SSRN: https://ssrn.com/abstract=1017833 or http://dx.doi.org/10.2139/ssrn.1017833

Ulf von Lilienfeld-Toal

Luxembourg School of Finance ( email )

162a, avenue de la Faïencerie
Luxembourg-Limpertsberg, L-1511
Luxembourg

Stefan Ruenzi (Contact Author)

University of Mannheim - Department of International Finance ( email )

L9, 1-2
Mannheim, 68131
Germany

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