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Adoption of Executive Ownership Guidelines: A New Look

52 Pages Posted: 30 Apr 2010 Last revised: 19 Mar 2011

Ying Cao

The Chinese University of Hong Kong (CUHK) - School of Accountancy

Zhaoyang Gu

Chinese University of Hong Kong - School of Accountancy

Yong George Yang

The Chinese University of Hong Kong (CUHK) - Faculty of Business Administration

Date Written: September 2, 2010

Abstract

Executive ownership guidelines are corporate polices mandating executive stock ownership in the firm. We document a dramatic increase in the adoption of executive ownership guidelines among large US firms in recent years. While early (pre-2002) adoptions appear to be driven primarily by efficient contracting between managers and shareholders, recent (post-2002) adoptions appear to be driven mainly by public pressure and firms’ herding tendency. As a result, significant post-adoption improvements in stock performance and increases in long-term investment are observed among early adopters but not among recent adopters except for a subset that is likely to have made the adoptions for efficient contracting reasons. In addition, some recent adopters exhibit abnormal increase in equity compensation that early adopters do not. These findings suggest that blind adoption of a “best practice” in corporate governance does not necessarily benefit shareholders.

Suggested Citation

Cao, Ying and Gu, Zhaoyang and Yang, Yong George, Adoption of Executive Ownership Guidelines: A New Look (September 2, 2010). Available at SSRN: https://ssrn.com/abstract=1596503 or http://dx.doi.org/10.2139/ssrn.1596503

Ying Cao

The Chinese University of Hong Kong (CUHK) - School of Accountancy ( email )

Shatin, N.T.
Hong Kong

Zhaoyang Gu (Contact Author)

Chinese University of Hong Kong - School of Accountancy ( email )

Shatin, N.T.
Hong Kong

Yong George Yang

The Chinese University of Hong Kong (CUHK) - Faculty of Business Administration ( email )

Shatin, N.T.
Hong Kong

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