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Managerial Ownership Dynamics and Firm Value

49 Pages Posted: 22 Jun 2007 Last revised: 27 Sep 2010

Rüdiger Fahlenbrach

Ecole Polytechnique Fédérale de Lausanne; Ecole Polytechnique Fédérale de Lausanne - Ecole Polytechnique Fédérale de Lausanne

René M. Stulz

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

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Date Written: January 2008

Abstract

From 1988 to 2003, the average change in managerial ownership is significantly negative every year for American firms. We find that managers are more likely to significantly decrease their ownership when their firms are performing well and more likely to increase their ownership when their firms become financially constrained. When controlling for past stock returns, we find that large increases in managerial ownership increase q. This result is driven by increases in shares held by officers, while increases in shares held by directors appear unrelated to changes in firm value. There is no evidence that large decreases in ownership have an adverse impact on firm value. We rely on the dynamics of the managerial ownership/firm value relation to mitigate concerns in the literature about the endogeneity of managerial ownership.

Keywords: Firm valuation, director and officer ownership, ownership dynamics

JEL Classification: G30, G32

Suggested Citation

Fahlenbrach, Rüdiger and Stulz, René M., Managerial Ownership Dynamics and Firm Value (January 2008). ECGI - Finance Working Paper No. 182/2007; Journal of Financial Economics (JFE), Forthcoming; Ohio State University, Fisher College of Business Working Paper No. 2007-03-013; Charles A. Dice Center Working Paper No. 2007-12 . Available at SSRN: https://ssrn.com/abstract=992919 or http://dx.doi.org/10.2139/ssrn.992919

Rüdiger Fahlenbrach

Ecole Polytechnique Fédérale de Lausanne ( email )

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Rene Stulz (Contact Author)

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

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United States

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

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

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B-1050 Brussels
Belgium

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