Why Managers Hold Shares of Their Firms: An Empirical Analysis

with strong past sales growth, firms with high CEO tenure, and among
younger firms. Table 6 shows the abnormal returns of managerial own-
ership portfolios consisting of firms in which we expect high CEO discretion.

+ + + Please insert TABLE 6 about here + + +

For easy comparison, in the first line the abnormal returns for managerial
ownership portfolios from the whole sample are repeated. In the second and
third line, managerial ownership portfolios are constructed from a sample
of firms that belong to industries in which CEOs matter most for Tobin’s
Q and for returns on assets (ROA), respectively. Wasserman, Nohria, and
Anand (2001) rank two-digit SIC industries according to the impact of the
CEO on these measures. We concentrate on firms that belong to indus-
tries with an above-median value for the impact of the CEO according to
their numbers. Monthly abnormal returns are 1.43% (1.62%) for managerial
ownership above 5% (10%) in the case of high CEO impact on the firm’s
Tobin’s Q, and 1.28% (1.46%) for managerial ownership above 5% (10%) in
the case of high CEO impact on the firm’s ROA. The last three lines contain
results for portfolios drawn from firms with above median sales growth in
the past five years, above median CEO tenure, and below median firm age,
respectively.¹⁹ Monthly abnormal returns for the 5% cutoff (10% cutoff) of
managerial ownership for these firms are 0.82%, 1.04%, and 1.02% (1.10%,
1.26%, and 1.32%), respectively. All of these abnormal returns are larger
than those for managerial ownership portfolios based on the whole sample.

¹⁹We use data on firm age from the Field-Ritter dataset (Field and Karpoff (2002) and
Laughran and Ritter (2004)), supplemented by firm age as reported in the S&P Public
Company Database.

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