Why are firms with more managerial ownership worth less?

Fabisik, Kornelia; Fahlenbrach, Rüdiger; Stulz, René M.; Taillard, Jérôme P. (2021). Why are firms with more managerial ownership worth less? Journal of financial economics, 140(3), pp. 699-725. Elsevier 10.1016/j.jfineco.2021.02.008

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Using more than 50,0 0 0 firm-years from 1988 to 2015, we show that the empirical relation
between a firm’s Tobin’s q and managerial ownership is systematically negative. When we
restrict our sample to larger firms, as in the prior literature, we confirm earlier findings of
an increasing and concave relation between q and managerial ownership. We show that
cumulative past performance and liquidity can explain these seemingly contradictory re-
sults. Better performing firms have more liquid equity, which enables firms and insiders to
more easily sell shares after the IPO, and they also have a higher Tobin’s q.

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