So far away from me: Firm location and the managerial ownership effect on firm value |
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| Institution: | 1. Department of Finance and Insurance, Miller College of Business, Ball State University, Muncie, IN 47306, United States of America;2. Department of Accounting, Antai College of Economics and Management, Shanghai Jiao Tong University, Shanghai, China;3. Department of Accounting, Finance, & Business Law, The University of Texas at Tyler, Tyler, TX 75799, United States of America;4. Department of Finance, Muma College of Business, BSN3403, University of South Florida, Tampa, FL 33620, United States of America;1. ESSEC Business School, France;2. Cass Business School, City, University of London, United Kingdom |
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| Abstract: | We examine the relation between CEO delta, firm locality, and firm value for a sample of 7749 firm-year observations. We find that CEO delta is more value-enhancing for rural firms, those associated with exacerbated agency conflicts resulting from decreased observability of managerial investment decisions and higher levels of information asymmetry. Further, the positive relation between CEO delta and firm value is stronger for rural firms with higher levels of information asymmetry or in less religious areas. Our findings imply that managerial ownership is more effective in mitigating agency conflicts in rural areas with higher levels of information asymmetry and lower degrees of local trustworthy constituents. Our results are robust to alternative definitions of urban/rural firms, the inclusion of additional control variables, and various tests controlling the endogeneity between firm location and value. Finally, the results do not appear to be driven by reverse causality. |
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