Working Paper: NBER ID: w13202
Authors: Rüdiger Fahlenbrach; Ren M. Stulz
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.
Keywords: No keywords provided
JEL Codes: G20; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| high past and concurrent stock returns (G17) | greater likelihood of ownership declines (G32) |
| past large decreases in managerial ownership (G34) | current changes in Tobin's Q (F29) |
| past large increases in managerial ownership (G34) | current Tobin's Q changes (E39) |
| large contemporaneous decreases in managerial ownership (G34) | increases in Tobin's Q (D25) |
| change in managerial ownership (G34) | change in Tobin's Q (D25) |