Ownership structure and firm performance: evidence from the UK financial services industry

Abstract

Theory tells us that managerial ownership of shares in a firm generates two conflicting effects on management behaviour, i.e. the convergence effect whereby increased managerial ownership can improve corporate performance, and the entrenchment effect which counters it. A number of studies have sought to evaluate these effects empirically. The results in the literature are not uniformly in agreement. In this paper, we distinguish between measures of ownership and measures of control implied by this ownership. Furthermore, we provide evidence supporting the entrenchment and convergence effects using UK data. A revised version of this paper has appeared in the journal Applied Financial Economics, vol.8(2), pp.175-180, 1998.

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