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Do managers seek control and entrenchment?
A unique dataset of post-IPO thrifts with heterogeneous initial insider ownership allows us to use revealed preferences to determine the level of ownership insiders believe to be optimal. We find strong evidence that insider ownership converges to the 20% to 30% range, whether insiders begin with di...
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Published in: | Journal of corporate finance (Amsterdam, Netherlands) Netherlands), 2021-04, Vol.67, p.101806, Article 101806 |
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Main Authors: | , |
Format: | Article |
Language: | English |
Subjects: | |
Citations: | Items that this one cites Items that cite this one |
Online Access: | Get full text |
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Summary: | A unique dataset of post-IPO thrifts with heterogeneous initial insider ownership allows us to use revealed preferences to determine the level of ownership insiders believe to be optimal. We find strong evidence that insider ownership converges to the 20% to 30% range, whether insiders begin with diffuse or concentrated ownership. This range of ownership has been found consistent with entrenchment and control in the literature. Our results are robust to a battery of variables related to insider ownership such as moral hazard, adverse selection, market timing, insider characteristics, and firm characteristics. Furthermore, we find that managers with diffuse ownership accumulate shares most aggressively during the period of regulatory anti-takeover protection, consistent with an entrenchment motive. We find that managers with above-average pay are more likely to seek higher ownership, consistent with the existence of private benefits of control. Finally, we find that insider ownership determines equity issuance, leverage, and share liquidity in ways consistent with expected accumulation or reduction in insider ownership for control purposes.
•Whether insiders begin with diffuse or concentrated ownership, it converges to the 20% to 30% range.•Range of ownership consistent with entrenchment and control.•Manager share accumulation during the period of regulatory anti-takeover protection, consistent with an entrenchment motive.•Managers with above-average pay are more likely to seek higher ownership, consistent with private benefits of control.•Insider ownership determines equity issuance, leverage, and share liquidity consistent with seeking control.. |
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ISSN: | 0929-1199 1872-6313 |
DOI: | 10.1016/j.jcorpfin.2020.101806 |