Why Managers Hold Shares of Their Firms: An Empirical Analysis

The S&P 1500 stock returns start at the beginning of year 1996. In
contrast, the S&P 500 stock returns are reported for the time period
starting at the beginning of 1994. Both end in December 2005, because the
last ownership information we have available is from the end of 2003. Our
last one-year investment based on this information starts at the beginning
of 2005. The asymmetric treatment of S&P 500 firms and S&P 1500 firms
is due to data availability (see Section 2.1) and is maintained throughout
the paper. Estimation results for portfolios consisting of all S&P 500 and
S&P 1500 stocks, respectively, are presented in Table 2.

+ + + Please insert TABLE 2 about here + + +

They show that regressing value-weighted portfolio returns on the four
factors yields no abnormal returns if our entire firm universe is used. This
suggests that Model (1) generally captures all relevant and priced factors
for our universe and it can be used to analyze portfolios consisting of stocks
that belong to this universe.

3 Managerial Ownership and Stock Market Per-
formance

To test for the relationship between the percentage share of stocks owned
by the manager and stock market performance, we examine portfolios that
only include firms in which the percentage of firms held by officers exceeds a
certain threshold. We then explore the robustness of our results by employing
different methodological approaches, by looking at alternative samples, and
by conducting a multivariate examination.

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