Elsevier

Journal of Financial Economics

Volume 20, January–March 1988, Pages 293-315
Journal of Financial Economics

Management ownership and market valuation: An empirical analysis

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Abstract

We investigate the relationship between management ownership and market valuation of the firm, as measured by Tobin's Q. In a 1980 cross-section of 371 Fortune 500 firms, we find evidence of a significant nonmonotonic relationship. Tobin's Q first increases, then declines, and finally rises slightly as ownership by the board of directors rises. For older firms, there is evidence that Q is lower when the firm is run by a member of the founding family than when it is run by an officer unrelated to the founder.

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    We are grateful to the Sloan Foundation and to the National Bureau of Economic Research for financial support. We would also like to thank Sanjai Bhagat, John Bound, Larry Dann, Harry DeAngelo, Harold Demsetz, Kenneth French, Zvi Griliches, Kevin M. Murphy, James Poterba, Edward Rice, Richard Ruback, Michael Barclay (the referee), and Michael Jensen (the editor) for helpful comments.

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