Managerial ownership dynamics and firm value

Ruediger Fahlenbrach and René M. Stulz

No 2008-1, CEI Working Paper Series from Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University

Abstract: From 1988 to 2003, the average change in managerial ownership is significantly negative every year for American firms. We find that managers are more likely to significantly decrease their ownership when their firms are performing well, but not more likely to increase their ownership when their firms have poor performance. Because investors learn about the total change in managerial ownership with a lag, changes in Tobin's q in a period can be affected by changes in managerial ownership in the previous period. In an efficient market, it is unlikely that changes in managerial ownership in one period are caused by future changes in q. When controlling for past stock returns, we find that large increases in managerial ownership increase q. This result is driven by increases in shares held by officers, while increases in shares held by directors appear unrelated to changes in firm value. There is no evidence that large decreases in ownership have an adverse impact on firm value. We argue that our evidence cannot be wholly explained by existing theories and propose a managerial discretion theory of ownership consistent with our evidence.

Keywords: Firm valuation; director and officer ownership; ownership dynamics (search for similar items in EconPapers)
JEL-codes: G30 G32 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2008-04
New Economics Papers: this item is included in nep-bec and nep-cfn
Note: January 2008
References: Add references at CitEc
Citations: View citations in EconPapers (3)

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https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/29275/WP2008-1.pdf

Related works:
Journal Article: Managerial ownership dynamics and firm value (2009)
Working Paper: Managerial Ownership Dynamics and Firm Value (2008)
Working Paper: Managerial Ownership Dynamics and Firm Value (2007)
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