Why Are Firms With More Managerial Ownership Worth Less?

64 Pages Posted: 4 Dec 2018 Last revised: 17 Sep 2020

See all articles by Kornelia Fabisik

Kornelia Fabisik

Frankfurt School of Finance & Management

Rüdiger Fahlenbrach

Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute; European Corporate Governance Institute (ECGI)

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Jérôme Taillard

Babson College

Multiple version iconThere are 2 versions of this paper

Date Written: December 4, 2018

Abstract

Using more than 50,000 firm-years from 1988 to 2015, we show that the empirical relation between a firm’s Tobin’s q and managerial ownership is systematically negative. When we restrict our sample to larger firms as in the prior literature, our findings are consistent with the literature, showing that there is an increasing and concave relation between q and managerial ownership. We show that these seemingly contradictory results are explained by cumulative past performance and liquidity. Better performing firms have more liquid equity, which enables insiders to more easily sell shares after the IPO, and they also have a higher Tobin’s q.

Keywords: Firm valuation, Director and officer ownership, Liquidity, Performance history

JEL Classification: G30, G32

Suggested Citation

Fabisik, Kornelia and Fahlenbrach, Rüdiger and Stulz, Rene M. and Taillard, Jérôme, Why Are Firms With More Managerial Ownership Worth Less? (December 4, 2018). Journal of Financial Economics (JFE), Forthcoming, Fisher College of Business Working Paper No. 2018-03-024, Charles A. Dice Center Working Paper No. 2018-24, Swiss Finance Institute Research Paper No. 18-75, European Corporate Governance Institute (ECGI) - Finance Working Paper No. 587/2018, Available at SSRN: https://ssrn.com/abstract=3295797 or http://dx.doi.org/10.2139/ssrn.3295797

Kornelia Fabisik

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Rüdiger Fahlenbrach

Ecole Polytechnique Fédérale de Lausanne ( email )

Quartier UNIL-Dorigny
Extranef 211
1015 Lausanne, CH-1015
Switzerland
++41-21-693-0098 (Phone)
++41-21-693-3010 (Fax)

HOME PAGE: http://https://www.epfl.ch/labs/sfi-rf/

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Rene M. Stulz (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Jérôme Taillard

Babson College ( email )

323 Tomasso Hall
Babson Park, MA 02457
United States
6145994184 (Phone)

HOME PAGE: http://https://www.babson.edu/academics/faculty/faculty-profiles/jerome-taillard.php

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