Managerial Stock Ownership as a Corporate Control Device: When is Enough, Enough?
40 Pages Posted: 4 Nov 2008
Date Written: October 2000
It has long been accepted that managerial stock ownership, beyond some range of possible entrenchment, can be an effective means of aligning the interests of professional managers with those of a firm s outside owners to the benefit of firm performance. In this paper, we offerevidence on the effectiveness of managerial stock ownership as a corporate control device by analyzing the behavior of 81 thrift institutions operating over the six-year period, 1989-1994. Based on the estimation of stochastic cost and profit frontiers, as well as other performance measures, our results suggest that managerial stock ownership provides an effective corporate control device. However, this device is only effective as managerial holdings surpass about 33% of outstanding shares for improvements in cost efficiency and about 40% for profit efficiency.
Keywords: Agency Theory, Corporate Governance, Depository Institutions
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