Why Managers Hold Shares of Their Firms: An
Empirical Analysis*
Ulf von Lilienfeld-Toal and Stefan Ruenzi
This draft: September 2007
Abstract
We examine the relationship between CEO ownership and stock
market performance. Firms in which the CEO voluntarily holds a con-
siderable share of outstanding stocks outperform the market by more
than 10% p.a. after controlling for traditional risk factors. The effect is
most pronounced in firms that are characterized by large managerial
discretion of the CEO. The abnormal returns we document are one
potential explanation why so many CEOs hold a large fraction of their
own company’s stocks. We also examine several potential explanations
why the existence of an owner CEO is not fully reflected in prices but
leads to abnormal returns.
JEL-Classification Codes: G12, G30
Keywords: CEO-Ownership, Asset Pricing with large shareholders
*The authors thank Franklin Allen, Efraim Benmelech, Matthias Blonski, Ingolf
Dittmann, Darrell Duffie, Dirk Jenter, Eugene Kandel, Ernst Maug, Preston McAfee, Dilip
Mookherjee, Jeremy Stein, Bruno Strulovici, Sheridan Titman, and seminar participants at
Boston University, the Free University of Berlin, the University of Adelaide, the University
of Frankfurt, and the CEPR European Summer Symposium in Financial Markets for help-
ful comments and suggestions. Von Lilienfeld-Toal is at Frankfurt University, Department
of Economics, Tel. +49-(0)69-798-28950, e-mail: [email protected]. Ruenzi
is at the University of Texas (Austin), McCombs School of Business and Cologne Uni-
versity, Department of Finance and Centre for Financial Research (CFR) Cologne, Tel.
+49-(0)221-470-6966, e-mail: [email protected]. This paper was written while the
authors were visiting the Financial and Economic Data Center (FEDC) at Humboldt
University, Berlin. This research was supported by the Deutsche Forschungsgemeinschaft
through the SFB 649 ’Economic Risk’.
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