The relationship between managerial ownership and firm performance in high R&D firms

Abstract Several studies have examined the relationship between managerial ownership and firm performance/value (e.g., [Journal of Financial Economics 20 (1988) 293; Journal of Financial Economics 27 (1990) 595; Journal of Corporate Finance 5 (1999) 79]). Using different samples, these studies provide general support for the argument that increases in managerial ownership create countervailing interest alignment and entrenchment effects, leading to a nonlinear relationship between managerial ownership and firm performance. However, the actual form of this nonlinear relationship differs across the studies. The present paper examines the relationship between managerial ownership and performance for high R&D firms that are listed on the NYSE, AMEX and NASDAQ. We find that Tobin's Q initially declines with managerial ownership, then increases, then declines again and, finally, increases again—a W-shaped relationship. The findings from our study point to the importance of industry effects in the relationship between managerial ownership and firm performance.

[1]  John Mcconnell,et al.  Additional evidence on equity ownership and corporate value , 1990 .

[2]  Myeong-Hyeon Cho,et al.  Ownership structure, investment, and the corporate value: an empirical analysis , 1998 .

[3]  Brian J. Bushee.  The Influence of Institutional Investors on Myopic R&D Investment Behavior , 1999 .

[4]  Kevin J. Murphy,et al.  Performance Pay and Top Management Incentives , 1990 .

[5]  David F. Larcker,et al.  AN ANALYSIS OF THE USE OF ACCOUNTING AND MARKET MEASURES OF PERFORMANCE IN EXECUTIVE-COMPENSATION CONTRACTS , 1987 .

[6]  M. H. Song,et al.  Managerial ownership, board structure, and the division of gains in divestitures , 2000 .

[7]  Sunil Wahal,et al.  Do Institutional Investors Exacerbate Managerial Myopia , 2000 .

[8]  F. Lichtenberg,et al.  Managerial ownership and firm performance: A re-examination using productivity measurement , 1999 .

[9]  Harry DeAngelo,et al.  Managerial ownership of voting rights: A study of public corporations with dual classes of common stock☆ , 1985 .

[10]  René M. Stulz,et al.  Managerial control of voting rights: Financing policies and the market for corporate control , 1988 .

[11]  M. C. Jensen,et al.  Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers , 1999 .

[12]  J. Nesheim.  High Tech Start Up : The Complete Handbook For Creating Successful New High Tech Companies , 1992 .

[13]  John W. Kensinger,et al.  Corporate research and development expenditures and share value , 1990 .

[14]  J. Francis,et al.  Agency costs and innovation some empirical evidence , 1995 .

[15]  Gerald R. Jensen,et al.  Simultaneous Determination of Insider Ownership, Debt, and Dividend Policies , 1992, Journal of Financial and Quantitative Analysis.

[16]  M. C. Jensen,et al.  Harvard Business School; SSRN; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Harvard University - Accounting & Control Unit , 1976 .

[17]  H. Demsetz,et al.  The Structure of Corporate Ownership: Causes and Consequences , 1985, Journal of Political Economy.

[18]  Helen Short,et al.  Managerial ownership and the performance of firms: Evidence from the UK , 1999 .

[19]  Terry D. Warfield,et al.  Managerial ownership, accounting choices, and informativeness of earnings , 1995 .

[20]  Ross L. Watts,et al.  The Investment Opportunity Set and Corporate Financing, Dividend, and Compensation Policies , 1992 .

[21]  Lotta Väänänen,et al.  Agency costs and R&D: Evidence from Finnish SMEs , 2003 .

[22]  David B. Smith,et al.  A comparison of the financial characteristics of December and non-December year-end companies , 1988 .

[23]  Anil Shivdasani,et al.  Board composition, ownership structure, and hostile takeovers , 1993 .

[24]  Jennifer J. Gaver,et al.  Additional evidence on the association between the investment opportunity set and corporate , 1993 .

[25]  A. Shleifer,et al.  Management Ownership and Market Valuation: An Empirical Analysis , 1988 .

[26]  R&D, Agency Costs and Capital Structure: International Evidence , 2003 .

[27]  Anup Agrawal,et al.  Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders , 1995 .

[28]  Jayesh Kumar.  Does Ownership Structure Influence Firm Value? Evidence from India , 2003, SSRN Electronic Journal.

[29]  David F. Larcker,et al.  Business unit innovation and the structure of executive compensation , 1995 .