Bank Managers' Opportunitistic Trading of Their Firms' Shares
Financial Management, Vol. 28, Iss. 4, Winter 1999
Posted: 12 Sep 2001
Requiring managers to hold shares in the firms they manage can reduce agency problems. Despite the pivotal role of share ownership, little evidence exists concerning who determines the level of ownership, the compensation committee, or managers themselves. This differentiation is important, since timely trades by managers can weaken the role share ownership plays in reducing agency problems. I find that managers do not rely solely on the compensation committee, and that personal transactions are important. Exploiting private firm-specific information, managers make opportunistic trades that, in effect, increase the rate of return and reduce the riskiness of their investments in their firms.
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