Were the Good Old Days That Good? Changes in Managerial Stock Ownership Since the Great Depression

Holderness, Clifford G.; Kroszner, Randall S.; Sheehan, Dennis P.

doi:10.3386/w6550

Cited by 258 publications

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“…To test this, we partitioned sub‐sample 1 (Firms with high free cash‐flows) into two groups: firms where the dominant shareholder's cash‐flow rights are low and firms where the dominant shareholder's cash‐flow rights are high. To further partition sub‐sample 1, we followed Morck et al (1988), Holderness et al (1999), Short and Keasey (1999) and Bozec and Laurin (2004), who show that entrenchment and the risk of expropriation are even more important when the dominant shareholder has less then 25 percent of the equity. We used this metric to create sub‐sample 3, comprised of firms with high free cash‐flows and for which the largest shareholder proportion of cash‐flow rights is less than or equal to 25 percent.…”

Section: Resultsmentioning

confidence: 99%

“…Firms are exposed to an entrenchment problem, that is a situation where the dominant shareholders have the power to use the firm in the pursuit of their own interests rather than the interests of all shareholders. A large number of studies provide empirical evidence for the existence of the entrenchment problem (Morck et al, 1988; Holderness et al, 1999; and Morck et al, 2005). Furthermore, studies also report that large shareholders often establish control over firms despite having minimal cash‐flow rights (Claessens et al, 2000; Faccio and Lang, 2002; Lins, 2003; and Attig and Gadhoum, 2003).…”

Section: Introductionmentioning

confidence: 99%

“…7 7 In previous research, ownership structures are hypothesized to be stable over time (Holderness et al, 1999). For our study, we used the ownership that prevailed in 1999 and assumed that this structure prevailed over the five year period covered by our study.…”

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confidence: 99%

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Large Shareholder Entrenchment and Performance: Empirical Evidence from Canada

Bozec

Laurin

2007

Business Fin & Account

125

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Recent empirical evidence indicates that the largest publicly traded companies throughout the world have concentrated ownership. This is the case in Canada where voting rights are often concentrated in the hands of large shareholders, mostly wealthy families. Such concentrated ownership structures can generate specific agency problems, such as large shareholders expropriating wealth from minority shareholders. These costs are aggravated when large shareholders don't bear the full costs of their decisions because of the presence of mechanisms (dual class voting shares, pyramids) which lead to voting rights being greater than the cash flow rights (separation). We assess the impact of separation on various performance metrics while controlling for situations when the large shareholder has (1) the opportunity to expropriate (high free cash flows in the firm) and (2) the incentive to expropriate (low cash flow rights). We also control for when the large shareholder has the power to expropriate (high voting rights, outright control and insider management) and for the presence of family ownership. The results support our hypotheses and indicate that firm performance is lower when large shareholders have both the incentives and the opportunity to expropriate minority shareholders. Copyright 2007 The Authors Journal compilation (c) 2007 Blackwell Publishing Ltd.

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Section: Resultsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Large Shareholder Entrenchment and Performance: Empirical Evidence from Canada

Bozec

Laurin

2007

Business Fin & Account

125

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“…Holderness, Kroszner, and Sheehan () estimate that the average equity ownership of officers and directors in the Finance, Insurance, and Real Estate sector was 17.4% in 1995.…”

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The Wall Street Walk when Blockholders Compete for Flows

Dasgupta¹,

Piacentino

2015

The Journal of Finance

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Effective monitoring by equity blockholders is important for good corporate governance. A prominent theoretical literature argues that the threat of block sale ("exit") can be an effective governance mechanism. Many blockholders are money managers.We show that when money managers compete for investor capital, the threat of exit loses credibility, weakening its governance role. Money managers with more skin in the game will govern more successfully using exit. Allowing funds to engage in activist measures ("voice") does not alter our qualitative results. Our results link widely prevalent incentives in the ever-expanding money management industry to the nature of corporate governance.Equity blockholders in publicly traded corporations who are dissatisfied with the actions of company management can sell their blocks-the so-called "Wall Street Walk." A growing * Dasgupta is at the London School of Economics, and is affiliated with CEPR and ECGI. 1 Accepted ArticleThis article is protected by copyright. All rights reserved. This article has been accepted for publication and undergone full peer review but has not been through the copyediting, typesetting, pagination and proofreading process, which may lead to differences between this version and the Version of Record. Please cite this article as doi: 10.1111/jofi.12308. theoretical literature starting with Pfleiderer (2009) andEdmans (2009) argues that the Wall Street Walk can be an effective form of governance. The exit of a blockholder will typically depress the stock price, punishing management whenever executive compensation is linked to the market price of equity. Thus, faced with a credible threat of exit, management will be reluctant to underperform. Admati and Pfleiderer argue that when blockholders observe managers underperforming, it is in their own interest to exit early before information about the manager's underperformance becomes public. This makes exit a credible threat that ameliorates managerial underperformance and enhances firm value. Edmans argues that informed institutional trading enhances the informational efficiency of the firm's equity in the secondary market, enabling myopic managers to make better investment decisions.The theoretical literature on exit treats the blockholder as a profit-maximizing principal:she acts as an individual owner of an equity block would. In contrast, a significant proportion of equity blocks is held by delegated portfolio managers who manage money for others (for example, mutual funds, and hedge funds).1 This matters because money managers often face short-term incentives that may lead them to behave in ways that are not conducive to good corporate governance. For example, as the EU (2011) Corporate Governance GreenPaper notes, It appears that the way asset managers' performance is evaluated... encourages asset managers to seek short-term benefits... The Commission believes that shortterm incentives... may contribute significantly to asset managers' short-termism, which probably has an impact on shareh...

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“…While there is substantial empirical evidence regarding the relation between ownership structure and firm value (e.g., Morck, Shleifer, and Vishny (1988), McConnell and Servaes (1990), and Holderness, Kroszner, and Sheehan (1999)), it has nevertheless been difficult to conduct irrefutable tests of this hypothesis. A primary problem has been disentangling the endogeneity issues that arise because ownership structure, investment opportunities, and firm value may all be jointly determined (e.g., Demsetz and Lehn (1985), Kole (1996), Cho (1998), Himmelberg, Hubbard, and Palia (1999), Demsetz and Villalonga (2001), and Core and Larcker (2002).…”

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confidence: 99%

Ownership Structure, Corporate Governance, and Firm Value: Evidence from the East Asian Financial Crisis

Lemmon¹,

Lins²

2003

The Journal of Finance

1,050

285

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We use a sample of 800 ¢rms in eight East Asian countries to study the e¡ect of ownership structure on value during the region's ¢nancial crisis. The crisis negatively impacted ¢rms' investment opportunities, raising the incentives of controlling shareholders to expropriate minority investors. Crisis period stock returns of ¢rms in which managers have high levels of control rights, but have separated their control and cash £ow ownership, are 10^20 percentage points lower than those of other ¢rms.The evidence is consistent with the view that ownership structure plays an important role in determining whether insiders expropriate minority shareholders.

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Were the Good Old Days That Good? Changes in Managerial Stock Ownership Since the Great Depression

Cited by 258 publications

References 0 publications

Large Shareholder Entrenchment and Performance: Empirical Evidence from Canada

Large Shareholder Entrenchment and Performance: Empirical Evidence from Canada

The Wall Street Walk when Blockholders Compete for Flows

Ownership Structure, Corporate Governance, and Firm Value: Evidence from the East Asian Financial Crisis

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