Why Are Firms With More Managerial Ownership Worth Less?

65 Pages Posted: 4 Dec 2018 Last revised: 20 Dec 2018

See all articles by Kornelia Fabisik

Kornelia Fabisik

Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute

Rüdiger Fahlenbrach

Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute

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). Fisher College of Business Working Paper No. 2018-03-024; 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

Ecole Polytechnique Fédérale de Lausanne ( email )

Quartier UNIL-Chamberonne
Bâtiment Extranef, #244
1015 Lausanne, CH-1015
Switzerland

HOME PAGE: http://www.fabisik.com

Swiss Finance Institute ( email )

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

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://sfi.epfl.ch/fahlenbrach.html

Swiss Finance Institute

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

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 ECARES ULB CP 114
B-1050 Brussels
Belgium

Jérôme Taillard

Babson College ( email )

Babson Park, MA 02457-0310
United States
781-239-6451 (Phone)

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