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Benefits of Control, Managerial Ownership, and the Stock Returns of Acquiring Firms

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  • R. Glenn Hubbard
  • Darius Palia

Abstract

This article examines how the benefits to managers of corporate control affect the relationship between the ownership and the stock returns of acquiring firms. At low levels of managerial ownership, agency costs of equity (such as perquisite consumption) reduce acquirer returns. At high levels of managerial ownership, managers enjoy nonassignable private benefits of control that they would lose if they sold their ownership stake. These benefits of control are increasing in the managerial ownership of a nonmonotonic relationship between the returns earned by acquirers and their managerial ownership level.

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  • R. Glenn Hubbard & Darius Palia, 1995. "Benefits of Control, Managerial Ownership, and the Stock Returns of Acquiring Firms," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 782-793, Winter.
    • Handle: RePEc:rje:randje:v:26:y:1995:i:winter:p:782-793
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    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance

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