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Separating the Wealth and Entrenchment Effects of Insider Ownership on Investment Performance

44 Pages Posted: 7 Mar 2004  

Klaus Peter Gugler

Vienna University of Economics and Business; European Corporate Governance Institute (ECGI)

Dennis C. Mueller

University of Vienna - Center for Business Studies - Department of Economics

B. Burcin Yurtoglu

WHU - Otto Beisheim School of Management

Date Written: January 2004

Abstract

This article makes two important contributions to the literature on the incentive effects of insider ownership. First, it presents a clean method for separating the positive wealth effect of insider ownership from the negative entrenchment effect, which can be applied to samples of companies from the US and any other country. Second, it measures the effects of insider ownership using a measure of firm performance, namely a marginal q, which ensures that the causal relationship estimated runs from ownership to performance. The article applies this method to a large sample of publicly listed firms from the Anglo-Saxon and Civil law traditions and confirms that managerial entrenchment has an unambiguous negative effect on firm performance as measured by both Tobin's (average) q and our marginal q, and that the wealth effect of insider ownership is unambiguously positive for both measures. We also test for the effects of ownership concentration for other categories of owners and find that while institutional ownership improves the performance in the USA, financial institutions have a negative impact in other Anglo-Saxon countries and in Europe.

Keywords: Insider ownership, Tobin's q, marginal q, performance, international comparison

JEL Classification: G32, L21

Suggested Citation

Gugler, Klaus Peter and Mueller, Dennis C. and Yurtoglu, B. Burcin, Separating the Wealth and Entrenchment Effects of Insider Ownership on Investment Performance (January 2004). Available at SSRN: https://ssrn.com/abstract=514702 or http://dx.doi.org/10.2139/ssrn.514702

Klaus Gugler

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

HOME PAGE: http://www.wu.ac.at/iqv/mitarbeiter/gugler

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Dennis C. Mueller

University of Vienna - Center for Business Studies - Department of Economics ( email )

BWZ - BrĂ¼nner Str.
A-1010 Vienna
Austria
+43 1 4277 37484 (Phone)
+43 1 4277 37498 (Fax)

HOME PAGE: http://mailbox.univie.ac.at/~muelled2/

B. Burcin Yurtoglu (Contact Author)

WHU - Otto Beisheim School of Management ( email )

Chair of Corporate Finance
Burgplatz 2
Vallendar, 56179
Germany
+49 261 6509-721 (Phone)
+49 261 6509-729 (Fax)

HOME PAGE: http://www.whu.edu/forschung/fakultaet/finance-group/corporate-finance/

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