Deviations from optimal CEO ownership and firm value |
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Authors: | Zhenxu Tong |
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Institution: | Xfi Centre for Finance and Investment, School of Business and Economics, University of Exeter, Rennes Drive, Exeter EX4 4ST, United Kingdom |
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Abstract: | The transaction cost theory of managerial ownership and firm value predicts that deviations from optimal managerial ownership reduce firm value. This paper empirically tests the transaction cost theory by studying the relation between deviations on either side of optimal CEO ownership and firm value. We find that both above-optimal and below-optimal deviations reduce firm value. We find that a change in CEO ownership is associated with a higher (lower) abnormal return if it moves the ownership towards (away from) the optimal level. These findings are consistent with the transaction cost theory of managerial ownership and firm value. |
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Keywords: | G30 G32 |
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