Why Are Firms With More Managerial Ownership Worth Less?
Charles A. Dice Center Working Paper No. 2018-24
64 Pages Posted: 4 Dec 2018 Last revised: 17 Sep 2020
Date Written: December 4, 2018
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: Suggested Citation