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Managerial ownership dynamics and firm value

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  • Fahlenbrach, Rüdiger
  • Stulz, René M.

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 Tobin's 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.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 92 (2009)
Issue (Month): 3 (June)
Pages: 342-361

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Handle: RePEc:eee:jfinec:v:92:y:2009:i:3:p:342-361

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Web page: http://www.elsevier.com/locate/inca/505576

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Keywords: Firm valuation Director and officer ownership Ownership dynamics;

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References

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Citations

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Cited by:
  1. Kim, E. Han & Lu, Yao, 2011. "CEO ownership, external governance, and risk-taking," Journal of Financial Economics, Elsevier, vol. 102(2), pages 272-292.
  2. Robert Hull & Sungkyu Kwak & Rosemary Walker, 2012. "Explanation for market response to seasoned equity offerings," Journal of Economics and Finance, Springer, vol. 36(3), pages 634-661, July.
  3. Edmans, Alex & Gabaix, Xavier & Sadzik, Tomasz & Sannikov, Yuliy, 2009. "Dynamic Incentive Accounts," CEPR Discussion Papers 7497, C.E.P.R. Discussion Papers.
  4. Achleitner, Ann-Kristin & Kaserer, Christoph & Kauf, Tobias, 2012. "The dynamics of voting ownership in lone-founder, family-founder, and heir firms," Journal of Family Business Strategy, Elsevier, vol. 3(2), pages 79-96.
  5. Achleitner, Ann-Kristin & Kaserer, Christoph & Ampenberger, Markus & Bitsch, Florian, 2009. "The German entrepreneurial index (GEX®): a primer on an ownership-based style index in Germany," CEFS Working Paper Series 2009-13, Center for Entrepreneurial and Financial Studies (CEFS), Technische Universität München.
  6. Pascal Frantz & Norvald Instefjord, 2009. "Large shareholders and corporate governance," Economics of Governance, Springer, vol. 10(4), pages 297-321, November.
  7. McConnell, John J. & Servaes, Henri & Lins, Karl V., 2008. "Changes in insider ownership and changes in the market value of the firm," Journal of Corporate Finance, Elsevier, vol. 14(2), pages 92-106, April.
  8. Georgeta Vintila & Stefan Cristian Gherghina, 2014. "Insider Ownership and the Value of the Bucharest Stock Exchange Listed Companies: Convergence-of-Interest or Entrenchment Effect?," International Journal of Economics and Financial Issues, Econjournals, vol. 4(1), pages 183-195.

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