Management ownership and corporate value

Existing literature on the relation between management ownership and firm value has provided competing hypotheses and conflicting evidence. Using samples of Fortune 500-sized firms in 1976, 1980 and 1984, we find that corporate value measured by Tobin's q is a function of management ownership. Specifically, the q rises when management ownership is between 0% and 5-7%, and falls as the ownership increases to 10-12%. Beyond this range, we find that the q continues to fall in the 1976 sample, and starts to rise in the 1980 and 1984 samples. The evidence supports the hypothesis that there is a nonmonotonic relation between management ownership and corporate value.

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