Identifying Control Motives in Managerial Ownership: Evidence from Antitakeover Legislation

Posted: 27 May 2004

See all articles by Shijun Cheng

Shijun Cheng

University of Maryland - Robert H. Smith School of Business

Venky Nagar

University of Michigan, Stephen M. Ross School of Business

Madhav V. Rajan

Booth School of Business, University of Chicago

Abstract

This study uses the introduction of second-generation antitakeover legislation as a natural experiment setting to infer the value that managers place on the control rights conferred by stock ownership. We conjecture that managers will reduce their stockholdings in the post-legislation period, because they can ensure their prior level of control while holding fewer risky shares. Using a variety of specifications, we find robust evidence consistent with this "revealed preference" hypothesis. Further demonstrating the key role played by control considerations in managers' stockholding decisions, the reductions in ownership are concentrated in management teams with higher levels of initial ownership, and in firms without poison pills.

Keywords: Antitakeover legislation, Managerial ownership, Control

JEL Classification: G34, G38

Suggested Citation

Cheng, Shijun and Nagar, Venky and Rajan, Madhav V., Identifying Control Motives in Managerial Ownership: Evidence from Antitakeover Legislation. Review of Financial Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=550988

Shijun Cheng

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States
301-405-5481 (Phone)
301-314-9414 (Fax)

HOME PAGE: http://www.rhsmith.umd.edu/accounting/faculty/cheng.html

Venky Nagar

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-647-3292 (Phone)
734-764-3146 (Fax)

Madhav V. Rajan (Contact Author)

Booth School of Business, University of Chicago

1101 East 58th Street
Chicago, IL 60637-1561
United States

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