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Why managers hold shares of their firm: An empirical analysis

  • von Lilienfeld-Toal, Ulf
  • Ruenzi, Stefan

We examine the relationship between CEO ownership and stock market performance of S&P 500 (S&P 1500) firms from 1994-2005 (1996-2005). We find that firms in which the CEO holds a considerable share of outstanding stocks outperform the market by up to 16% p.a. after controlling for traditional risk factors like size, book-to-market and momentum. This offers an explanation why so many CEOs hold a large fraction of their own company's stocks. They do so simply because it pays. We also examine several potential explanations why the existence of an owner CEO is not fully priced but leads to abnormal returns.

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Paper provided by University of Cologne, Centre for Financial Research (CFR) in its series CFR Working Papers with number 06-11.

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Date of creation: 2006
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Handle: RePEc:zbw:cfrwps:0611
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  21. Shumway, Tyler, 1997. " The Delisting Bias in CRSP Data," Journal of Finance, American Finance Association, vol. 52(1), pages 327-40, March.
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  23. Tim Loughran & Jay Ritter, 2004. "Why Has IPO Underpricing Changed Over Time?," Financial Management, Financial Management Association, vol. 33(3), Fall.
  24. Brennan, Michael J. & Chordia, Tarun & Subrahmanyam, Avanidhar, 1998. "Alternative factor specifications, security characteristics, and the cross-section of expected stock returns," Journal of Financial Economics, Elsevier, vol. 49(3), pages 345-373, September.
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  27. Bennedsen, Morten & Pérez-González, Francisco & Wolfenzon, Daniel, 2007. "Do CEOs Matter?," Working Papers 13-2007, Copenhagen Business School, Department of Economics.
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