Performance Consequences of Mandatory Increases in Executive Stock Ownership

37 Pages Posted: 3 Jul 2000

See all articles by John E. Core

John E. Core

Massachusetts Institute of Technology (MIT) - Sloan School of Management

David F. Larcker

Stanford Graduate School of Business; Stanford University - Hoover Institution; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2000

Abstract

We examine a sample of firms that adopt "target ownership plans," under which managers are required to own a minimum amount of stock. We find that prior to plan adoption, such firms exhibit low managerial equity ownership and low stock price performance. Managerial equity ownership increases significantly in the two years following plan adoption. We also observe that excess accounting returns and stock returns are higher after the plan is adopted. Thus, for our sample of firms, the required increases in the level of managerial equity ownership result in improvements in firm performance.

Keywords: Managerial ownership; Corporate governance; Financial performance

JEL Classification: G30, G32, J33, L14, L22, D23

Suggested Citation

Core, John E. and Larcker, David F., Performance Consequences of Mandatory Increases in Executive Stock Ownership (May 2000). Available at SSRN: https://ssrn.com/abstract=229789 or http://dx.doi.org/10.2139/ssrn.229789

John E. Core

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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David F. Larcker (Contact Author)

Stanford Graduate School of Business ( email )

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Stanford University - Hoover Institution ( email )

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European Corporate Governance Institute (ECGI) ( email )

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