Managerial Share Ownership and Operating Performance: Do Independent and Executive Directors Have Different Incentives
Posted: 11 Feb 2014
Date Written: February 11, 2014
We investigate the relationship 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 artifact of certain Australian institutional features and imply that the ownership-performance relation is context-specific, with the wider corporate governance systems influencing the theorized 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: Entrenchment, incentive alignment, managerial share ownership, performance
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