Managerial shareholdings, firm value, and acquired corporations

Prior research on the relationship between managerial shareholdings and firm value provides conflicting evidence. We take a different approach to its analysis and focus on managerial shareholdings in acquired firms. We argue that in a relatively unfettered market for corporate control, prior evidence of a nonlinear relationship between moral hazard costs and managerial shareholdings suggests that acquired corporations can be segmented according to managerial shareholdings, and that these segments will differ according to the source of wealth gains, managerial resistance, who acquires the company, and how target shareholders are paid. We find evidence consistent with these predictions.