When Blockholders Leave Feet First: Do Managerial Ownership Affects Firm Value?
36 Pages Posted: 15 Mar 2012
Date Written: March 1, 2012
We investigate whether managerial ownership enhances firm value by exploiting exogenous variation resulting from stock price reactions to blockholder deaths. We find, first, that the average stock price reaction to the sudden death of inside blockholders ranges from -5% for small ownership stakes to 4% for large ownership stakes. The positive and significant relationship between ownership and stock price reactions implies that the beneficial effect of managerial ownership disappears as ownership increases. Second, this relationship is stronger when outside blockholders and inside non-blockholders are used as control groups. Third, we show that stock price reactions to the sudden death of outside blockholders are negatively related to their ownership stake. Our results are robust to controlling for anticipated control activity and various specifications of the tests. Overall our results provide empirical evidence of the incentive and entrenchment effects of managerial ownership.
Keywords: Ownership concentration, Blockholder, Firm Value, Corporate Control, Sudden Death, Corporate Governance
JEL Classification: G3, G30
Suggested Citation: Suggested Citation