Why Managers Hold Shares of Their Firms: An Empirical Analysis

given by the mean and statistical significance of the time series statistics of
these monthly estimates. Table 5 summarizes the results.

+ + + Please insert TABLE 5 about here + + +

Panel A presents results for raw returns. Column (1) gives the results of
an estimation where we do not include the dummy variable D(10%). The
influence of managerial ownership is positive, but not statistically signifi-
cant. This may be due to the large number of firms where the officer with
the highest managerial ownership only owns a very small fraction of the
company’s stocks (see Table 1). In these instances, incentives to engage in
value-enhancing efforts might be too small. Including the dummy variable
delivers more meaningful results; its influence is large in economic terms.
The point estimate of 0.65 (together with the estimate of -0.02 for the lin-
ear influence of Shrownpc) indicates that firms where one officer owns at
least 10% of the company’s shares deliver annual abnormal returns of 5.5%.
The influence of the 10% dummy is significant at the 5% level. The last two
columns summarize results using industry adjusted returns as dependent
variables. Consistent with the results from the portfolio approach, abnormal
returns are slightly lower now, as indicated by the point estimate of 0.6 for
the influence of the 10% dummy. They are still statistically significant at the
5% level. Overall, these results show that firms with a manager who owns
a large fraction of the company’s stocks outperform other firms even after
Gompers, Ishii, and Metrick (2003) also use institutional ownership as a control variable.
We do not have this data item available. However, in Gompers, Ishii, and Metrick (2003),
the influence of institutional ownership is never significant. Thus, we do not expect that
this omission influences our results.

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