Understanding the determinants of managerial ownership and the link between ownership and performance

Understanding the determinants of managerial ownership and the link between ownership and... Both managerial ownership and performance are endogenously determined by exogenous (and only partly observed) changes in the firm's contracting environment. We extend the cross-sectional results of Demsetz and Lehn (1985), (Journal of Political Economy, 93, 1155–1177) and use panel data to show that managerial ownership is explained by key variables in the contracting environment in ways consistent with the predictions of principal-agent models. A large fraction of the cross-sectional variation in managerial ownership is explained by unobserved firm heterogeneity. Moreover, after controlling both for observed firm characteristics and firm fixed effects, we cannot conclude (econometrically) that changes in managerial ownership affect firm performance. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Economics Elsevier

Understanding the determinants of managerial ownership and the link between ownership and performance

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Abstract

Both managerial ownership and performance are endogenously determined by exogenous (and only partly observed) changes in the firm's contracting environment. We extend the cross-sectional results of Demsetz and Lehn (1985), (Journal of Political Economy, 93, 1155–1177) and use panel data to show that managerial ownership is explained by key variables in the contracting environment in ways consistent with the predictions of principal-agent models. A large fraction of the cross-sectional variation in managerial ownership is explained by unobserved firm heterogeneity. Moreover, after controlling both for observed firm characteristics and firm fixed effects, we cannot conclude (econometrically) that changes in managerial ownership affect firm performance.

Journal

Journal of Financial EconomicsElsevier

Published: Sep 1, 1999

References

  • Executive pay and performance
    Hubbard, R.G.; Palia, D.
  • Measuring managerial equity ownership
    Kole, S.

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