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Why Are Firms With More Managerial Ownership Worth Less?

Author

Listed:
  • Kornelia Fabisik

    (Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute)

  • Rüdiger Fahlenbrach

    (Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute)

  • René M. Stulz

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

  • Jérôme Taillard

    (Babson College)

Abstract

Using more than 50,000 firm-years from 1988 to 2015, we show that the empirical relation between a firm’s Tobin’s q and managerial ownership is systematically negative. When we restrict our sample to larger firms as in the prior literature, our findings are consistent with the literature, showing that there is an increasing and concave relation between q and managerial ownership. We show that these seemingly contradictory results are explained by cumulative past performance and liquidity. Better performing firms have more liquid equity, which enables insiders to more easily sell shares after the IPO, and they also have a higher Tobin’s q.

Suggested Citation

  • Kornelia Fabisik & Rüdiger Fahlenbrach & René M. Stulz & Jérôme Taillard, 2018. "Why Are Firms With More Managerial Ownership Worth Less?," Swiss Finance Institute Research Paper Series 18-75, Swiss Finance Institute.
  • Handle: RePEc:chf:rpseri:rp1875
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    References listed on IDEAS

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    Cited by:

    1. Florackis, Chris & Kanas, Angelos & Kostakis, Alexandros & Sainani, Sushil, 2020. "Idiosyncratic risk, risk-taking incentives and the relation between managerial ownership and firm value," European Journal of Operational Research, Elsevier, vol. 283(2), pages 748-766.

    More about this item

    Keywords

    Firm valuation; Director and officer ownership; Liquidity; Performance history;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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