Managerial Entrenchment and Firm Value: A Dynamic Perspective
36 Pages Posted: 18 Jan 2010 Last revised: 3 Aug 2013
Date Written: March 5, 2013
We examine the impact of managerial entrenchment on firm value using a dynamic model with firm fixed effects. To estimate the model, we employ the long difference technique, which is shown by our simulation to deliver the least biased estimates. Based on a large sample of U.S. companies, we document a significantly negative and causal effect of managerial entrenchment on firm value after taking into account omitted variables, reverse causality, and highly persistent endogenous variables. Additional analysis suggests that the causality running from managerial entrenchment to firm value is more pronounced than reverse causality.
Keywords: Corporate Governance, Managerial Entrenchment, Long Difference Estimator, Reverse Causality, Panel VAR
JEL Classification: G3, G34, L25
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