2019 GCGC

7-8 June 2019

Why Are Firms with More Managerial Ownership Worth Less?


René Stulz

Everett D. Reese Chair of Banking and Monetary Economics, The Ohio State University


Alon Brav

Robert L. Dickens Professor of Finance, Fuqua School of Business, Duke University


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.

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