Managerial Share Ownership and Operating Performance: Do Independent and Executive Directors Have Different Incentives?
42 Pages Posted: 6 Sep 2012
Date Written: 2012
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: Suggested Citation