Managerial Ownership and Performance

Abstract

This study revisits the classical debate about the nature of the relationship between managerial ownership and corporate performance by using a semi-parametric estimation approach. The semi-parametric approach helps sidestep concerns associated with the potential misspecification of parametric models (e.g., the arbitrary choice of a fixed number and/or location of turning points) and enables the consideration of a wider range of non-linear behaviors. The empirical results support the existence of the initial alignment effect of managerial ownership (i.e., for levels lower than 15%), while they do not lead to a strong inference on the relationship between managerial ownership and corporate performance for intermediate and high levels of managerial ownership. The results cast doubt on the findings of recent studies on the subject, which critically rely on fully parametric methods, suggesting instead the use of semi-parametric methods to estimate the shape of the ownership-performance curve.

Keywords: Corporate performance, managerial ownership, semi-parametric approach