Managerial Share Ownership and Operating Performance: Do Independent and Executive Directors Have Different Incentives?

42 Pages Posted: 6 Sep 2012

See all articles by Arifur Khan

Arifur Khan

Deakin University - School of Accounting, Economics and Finance

Paul R. Mather

La Trobe University

Balasingham Balachandran

La Trobe University - School of Economics and Finance; Financial Research Network (FIRN)

Date Written: 2012

Abstract

We investigate the relation between managerial share ownership (MSO) and earnings as a measure of operating performance in Australia. To mitigate potential earnings management, we also use discretionary accrual adjusted earnings as an alternative measure of performance. We document a negative relation between MSO and performance followed by a positive relation. We suggest that these unique results are an artefact of certain Australian institutional features and imply that the ownership-performance relation is context specific with the wider corporate governance systems influencing the theorised incentive effects. We also posit that executive directors and independent directors have different ownership-performance incentives. Our results are consistent with this proposition and suggest that independent directors may be immune to the theorised incentive alignment or entrenchment effects associated with share ownership.

Keywords: Managerial Share Ownership, Performance, Incentive Alignment, Entrenchment

JEL Classification: G32, M41

Suggested Citation

Khan, Arifur and Mather, Paul R. and Balachandran, Balasingham, Managerial Share Ownership and Operating Performance: Do Independent and Executive Directors Have Different Incentives? (2012). Australian Journal of Management, 2012 Forthcoming; Finance and Corporate Governance Conference 2010 Paper. Available at SSRN: https://ssrn.com/abstract=2141842

Arifur Khan (Contact Author)

Deakin University - School of Accounting, Economics and Finance ( email )

221 Burwood Highway
Burwood, Victoria 3125
Australia

Paul R. Mather

La Trobe University ( email )

School of Accounting
Bundoora
Melbourne, Victoria 3086
Australia
+61-3-9479-5264 (Phone)

Balasingham Balachandran

La Trobe University - School of Economics and Finance ( email )

La Trobe University
Bundoora, Vic, 3086
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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