Managerial Ownership and Firm Performance: Evidence from the 2003 Tax Cut

58 Pages Posted: 27 Jun 2013 Last revised: 21 Sep 2018

See all articles by Xing Li

Xing Li

Peking University - Guanghua School of Management

Stephen Teng Sun

City University of Hong Kong (CityUHK) - Department of Accountancy

Constantine Yannelis

New York University Leonard N. Stern School of Business; University of Chicago Booth School of Business

Date Written: September 10, 2018

Abstract

Causal evidence on the effect of managerial ownership on firm performance is elusive due to a lack of within-firm variation and credible empirical designs. We identify this causal effect by exploiting the 2003 Tax Cut as a natural experiment, which increased net-of-tax effective managerial ownership, and examine changes in Tobin's Q as well as alternative measures of operating performance. Consistent with theoretical predictions, our difference-in-difference empirical design uncovers a hump-shaped improvement in firm performance concerning the level of managerial ownership. The increase in performance is more pronounced for firms with more severe agency problems or under weaker governance, further demonstrating managerial ownership as the underlying channel.

Keywords: Firm valuation, Director and officer ownership, Corporate governance, Institutional ownership concentration

JEL Classification: M48, G34, G32, D86

Suggested Citation

Li, Xing and Sun, Stephen Teng and Yannelis, Constantine, Managerial Ownership and Firm Performance: Evidence from the 2003 Tax Cut (September 10, 2018). Available at SSRN: https://ssrn.com/abstract=2285638 or http://dx.doi.org/10.2139/ssrn.2285638

Xing Li

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

Stephen Teng Sun (Contact Author)

City University of Hong Kong (CityUHK) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

Constantine Yannelis

New York University Leonard N. Stern School of Business ( email )

Suite 9-160
New York, NY
United States

University of Chicago Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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