Working Paper: NBER ID: w25352
Authors: Kornelia Fabisik; Rüdiger Fahlenbrach; René M. Stulz; Jérôme P. Taillard
Abstract: 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.
Keywords: Managerial Ownership; Tobin's Q; Liquidity; Firm Performance
JEL Codes: G30; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased liquidity (E41) | decreased managerial ownership (G34) |
| lower managerial ownership (G32) | higher Tobin's Q (D25) |
| high past liquidity (G33) | lower managerial ownership (G32) |
| low past liquidity (G33) | strong negative relationship with managerial ownership (G34) |
| decrease in managerial ownership since IPO (G34) | higher Tobin's Q (D25) |
| managerial ownership decreases (G34) | liquidity increases (E41) |