Corporate Governance in New Enterprises, or Why do Some CEOs Hold Large Equity Stakes While Others are Paid Through Stock Options?

Abstract

■ This paper analyzes the determinants of CEO equity ownership in a sample of 273 young and innovative IPOs between 1997 and 2002. In contrast to other studies on managerial equity ownership, where managerial equity ownership is explained by agency-theoretic arguments, the empirical analysis in this paper is based on the property-rights approach. Arguing that asset ownership not only provides incentives for effort but also for specific investments, the empirical evidence in this study strongly confirms the property-rights approach. First, it could be shown that equity ownership significantly depends on intangible assets. Secondly, that contractual arrangements are more likely in the absent of such intangible assets and thirdly that complementary assets are more likely to be owned together and not separately.