Managerial Entrenchment and Firm Value: A Dynamic Perspective

Xin Chang · Hong Feng Zhang

54 citations0/0 files storedJournal of Financial and Quantitative Analysis

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Corporate Finance and Governance Financial Markets and Investment Strategies Financial Reporting and Valuation Research

Abstract

Abstract We examine the impact of managerial entrenchment on firm value using a dynamic model with firm fixed effects. To estimate the model, we employ the long-difference technique, which is shown by our simulation to deliver the least biased estimates. Based on a large sample of U.S. companies, we document a significantly negative and causal effect of managerial entrenchment on firm value after taking into account omitted variables, reverse causality, and highly persistent endogenous variables. Additional analysis suggests that the causality running from managerial entrenchment to firm value is more pronounced than that for reverse causality.

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References

1998Initial conditions and moment restrictions in dynamic panel data models 1995Another look at the instrumental variable estimation of error-components models 1995Initial conditions and moment restrictions in dynamic panel data models 1973Risk, Return, and Equilibrium: Empirical Tests 1981Biases in Dynamic Models with Fixed Effects 2003Analysis of Panel Data 1999A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test 2003Corporate Governance and Equity Prices

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