Managerial Stock Holdings and Firm Performance

Abstract

Agency theory proposes that increasing managerial ownership in a firm can help align owner/management interests and motivate managers for better performance. This paper examines the relationship between managerial stock holdings and firm performance in the restaurant industry. Using the financial data of restaurant companies during 1995-1996, this study found that managerial ownership was positively and significantly associated with most of the performance measures, particularly in firms with 0%-15% managerial ownership. Firm size, a control variable, was also found to have a positive impact on performance. The results suggest that large restaurant firms with relatively low managerial ownership may raise managerial holdings to enhance their profitability and Stock returns.

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