Why Managers Hold Shares of Their Firms: An Empirical
Analysis
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
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