Managerial Ownership Change and Firm Value

Download or read book Managerial Ownership Change and Firm Value written by Moon H. Song and published by . This book was released on 1999 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study explores the relation between managerial ownership and firm value by examining a sample of firms that announce dual class recapitalizations and the insider trading activity that precede these announcements. Insider trading activity, unlike the recapitalization, requires managers to commit their personal wealth and therefore serves as an indicator of the motivation behind the recapitalization. The recapitalization, in effect, allows managers to magnify the increase in vote ownership that results from insider buying and offsets the reduction in vote ownership that results from insider selling. This study adds to our understanding of dual class recapitalizations by linking the wealth effects and changes in ownership concentration with manager-shareholder agency issues that result from the recapitalization and insider trading activity. Results show a positive relation between the change in firm value and ownership for recapitalizations before the 1984 New York Stock Exchange moratorium on delisting dual class firms when ownership was high and control was firmly established. A negative relation exists for recapitalizations since 1984 when ownership levels were lower and voting control not assured. Results support the notion that more recent recapitalizations entrenched managers.