Shareholder Rights, Managerial Incentives, and Firm Value

53 Pages Posted: 6 Mar 2011 Last revised: 9 Dec 2014

Feng Zhang

University of Utah - Department of Finance

Date Written: December 8, 2014

Abstract

This paper investigates interactions between two central corporate governance mechanisms: shareholder rights and managerial ownership. I find that the effect of managerial ownership on firm value crucially depends on shareholder rights. Managerial ownership enhances firm value when shareholder rights are strong, but reduces firm value when shareholder rights are weak. Announcement returns of manager share purchases in the open market are also lower for firms with weak shareholder rights. Furthermore, firms with weak shareholder rights have significantly lower managerial ownership. My findings suggest that shareholder rights and managerial ownership are complementary governance mechanisms.

Keywords: Antitakeover provisions, managerial incentives, firm value, compensation contract

JEL Classification: G32, G34

Suggested Citation

Zhang, Feng, Shareholder Rights, Managerial Incentives, and Firm Value (December 8, 2014). Available at SSRN: https://ssrn.com/abstract=1776643 or http://dx.doi.org/10.2139/ssrn.1776643

Feng Zhang (Contact Author)

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112-9303
United States

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