Why are Firms with More Managerial Ownership Worth Less?
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.
Fabisik and Fahlenbrach are PhD student and Associate Professor at Ecole Polytechnique Fédérale de Lausanne,respectively. Fahlenbrach is affiliated with ECGI and the Swiss Finance Institute. Stulz is Everett D. Reese Chair of Banking and Monetary Economics, Fisher College of Business, Ohio State University, and is affiliated with NBER, ECGI and the Wharton Financial Institutions Center. Taillard is Associate Professor at Babson College. Fahlenbrach gratefully acknowledges financial support from the Swiss Finance Institute. Part of this paper was written while Fahlenbrach was a Dice Fellow at Ohio State University.
Fabisik, Kornelia & Fahlenbrach, Rüdiger & Stulz, René M. & Taillard, Jérôme P., 2021. "Why are firms with more managerial ownership worth less?," Journal of Financial Economics, Elsevier, vol. 140(3), pages 699-725. citation courtesy of