Understanding the Determinants of Managerial Ownership and the Link Between Ownership and Performance / Charles P. Himmelberg, R. Glenn Hubbard, Darius Palia.

By:

Himmelberg, Charles P

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w7209.Publication details: Cambridge, Mass. National Bureau of Economic Research 2000.Description: 1 online resource: illustrations (black and white)Subject(s):

G3 - Corporate Finance and Governance

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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) 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.

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February 2000.

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.