When Blockholders Leave Feet First: Do Managerial Ownership Affects Firm Value?

36 Pages Posted: 15 Mar 2012

See all articles by Bang Dang Nguyen

Bang Dang Nguyen

University of Cambridge Judge Business School

Kasper Meisner Nielsen

Copenhagen Business School - Department of Finance; Hong Kong University of Science & Technology (HKUST) - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2012

Abstract

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

Nguyen, Bang Dang and Nielsen, Kasper Meisner, When Blockholders Leave Feet First: Do Managerial Ownership Affects Firm Value? (March 1, 2012). Available at SSRN: https://ssrn.com/abstract=2022731 or http://dx.doi.org/10.2139/ssrn.2022731

Bang Dang Nguyen

University of Cambridge Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+44 122 376 0470 (Phone)
+44 1223 339701 (Fax)

HOME PAGE: http://www.jbs.cam.ac.uk/research/faculty/nguyenbd.html

Kasper Meisner Nielsen (Contact Author)

Copenhagen Business School - Department of Finance ( email )

A4.17 Solbjerg Plads 3
Copenhagen, Frederiksberg 2000
Denmark

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong

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