Managerial Ownership Dynamics and Firm Value

Ruediger Fahlenbrach and René Stulz

No 13202, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: From 1988 to 2003, the average change in managerial ownership is significantly negative every year for American firms. The probability of large decreases in ownership is strongly increasing in contemporaneous and past stock returns but the probability of large increases in ownership through managerial purchases of shares is not. The relation between changes in Tobin's q and past and contemporaneous changes in ownership depends critically on controlling for past stock returns. When controlling for past stock returns, past large decreases in managerial ownership are unrelated to current changes in Tobin's q but there is some evidence that past large increases in managerial ownership are positively related to current changes in Tobin's q. Because managers sell shares when a firm's stock is performing well, large contemporaneous decreases in managerial ownership are associated with increases in Tobin's q. We argue that our evidence is mostly inconsistent with existing theories and propose a managerial discretion theory of ownership consistent with our evidence.

JEL-codes: G20 G32 (search for similar items in EconPapers)
Date: 2007-06
New Economics Papers: this item is included in nep-bec
Note: CF
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Citations: View citations in EconPapers (6)

Published as Fahlenbrach, Rüdiger & Stulz, René M., 2009. "Managerial ownership dynamics and firm value," Journal of Financial Economics, Elsevier, vol. 92(3), pages 342-361, June.

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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 (2008)
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