Understanding the Determinants of Managerial Ownership and the Link Between Ownership and Performance
NBER Working Paper No. 7209 (Also Reprint No. r2254)
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) 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.
Published: Journal of Financial Economics, vol. 53, pp. 353-384, 1999.