Do director ownership plans change director behavior?

We find evidence that board-wide mandated director ownership plans, as opposed to simply relying upon individual self-directed ownership decisions, strengthen the alignment of interests between directors and shareholders through the constraints such plans impose on director selling of shares. This is especially so in the presence of influential institutional investors. In a propensity score-based matched sample difference-in-differences framework, we find that directors in firms adopting ownership plans are associated with greater ownership increases, a reduction in net sales of shares, and increased engagement relative to directors in non-adopting firms. Results are similar when examining directors with multiple directorships in director-fixed effects regressions. We also find disinterested directors depart firms after adoption. We find that firms shift toward more stock-based compensation around plan adoptions, further revealing that the strength of these plans comes from the share-selling restrictions. These findings indicate that ownership plans can be effective governance mechanisms, providing shareholders a means to offset weak director reputation incentives and improve firm value.