Managerial Entrenchment and Firm Value: A Dynamic Perspective

36 Pages Posted: 18 Jan 2010 Last revised: 3 Aug 2013

Xin (Simba) Chang

Cambridge Judge Business School; Nanyang Business School

Hong Feng Zhang

Deakin University - Deakin Business School

Date Written: March 5, 2013

Abstract

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

Suggested Citation

Chang, Xin (Simba) and Zhang, Hong Feng, Managerial Entrenchment and Firm Value: A Dynamic Perspective (March 5, 2013). Available at SSRN: https://ssrn.com/abstract=1537079 or http://dx.doi.org/10.2139/ssrn.1537079

Xin Chang

Cambridge Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

HOME PAGE: http://sites.google.com/site/simbachangxin/

Nanyang Business School ( email )

S3-B1B-76 Nanyang Avenue
Singapore, 639798
Singapore

HOME PAGE: http://www.ntu.edu.sg/home/changxin

Hong Feng Zhang (Contact Author)

Deakin University - Deakin Business School ( email )

221 Burwood Highway
Burwood, Victoria 3215
Australia

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