Performance Consequences of Mandatory Increases in Executive Stock Ownership

Posted: 24 Nov 2001  

John E. Core

Massachusetts Institute of Technology (MIT) - Sloan School of Management

David F. Larcker

Stanford University - Graduate School of Business

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Abstract

We examine a sample of firms that adopt "target ownership plans," under which managers are required to own a minimum amount of stock. We find that prior to plan adoption, such firms exhibit low managerial equity ownership and low stock price performance. Managerial equity ownership increases significantly in the two years following plan adoption. We also observe that excess accounting returns and stock returns are higher after the plan is adopted. Thus, for our sample of firms, the required increases in the level of managerial equity ownership result in improvements in firm performance.

Keywords: Managerial ownership; Corporate governance; Financial performance

JEL Classification: G30, G32, J33, L14, L22

Suggested Citation

Core, John E. and Larcker, David F., Performance Consequences of Mandatory Increases in Executive Stock Ownership. Journal of Financial Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=283975

John E. Core (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

77 Massachusetts Ave.
E62-416
Cambridge, MA 02138
United States

David F. Larcker

Stanford University - Graduate School of Business ( email )

Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

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