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Why are Firms with More Managerial Ownership Worth Less?

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  • Fabisik, Kornelia

    (Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute)

  • Fahlenbrach, Rudiger

    (Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute)

  • Stulz, Rene M.

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

  • Taillard, Jerome P.

    (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

  • Fabisik, Kornelia & Fahlenbrach, Rudiger & Stulz, Rene M. & Taillard, Jerome P., 2018. "Why are Firms with More Managerial Ownership Worth Less?," Working Paper Series 2018-24, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  • Handle: RePEc:ecl:ohidic:2018-24
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    2. Bianchi, Milo & Luomaranta, Henri, 2021. "Agency Costs in Small Firms," TSE Working Papers 21-1252, Toulouse School of Economics (TSE).

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    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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