Managerial Ownership, Board of Directors, Equity-based Compensation and Firm Performance: A Comparative Study between France and the United States

Abstract

Abstract The aim of this comparative study between the French and American markets, characterized by a different ownership structure is to examine the relationship between managerial ownership, the board of directors, the equity-based compensation and corporate performance. Regardless of the selected sample, we found on the one hand, a non-linear relationship between managerial ownership and firm performance and on the other hand, in the case of managerial entrenchment board of directors is a substitute for managerial ownership to solve the agency problem. In addition, stock-based compensation is non-linear function with managerial ownership, contrary to previous studies that assume a monotonous or non-significant relationship. The hypothesis of endogeneity is valid only in the American case. This result leads us to believe that the U.S. CEO has a preference to hold a large percentage of shares of firms that generate a good performance to neutralize capital market monitoring. Our study is exclusive in terms of the effect of managerial ownership on corporate performance in terms of comparison between two markets, characterized by a difference in ownership structure. We determine the impact of equity compensation on the one hand, the managerial ownership where all the studies assume either a monotone or neutral relationship between these two variables and on the other hand, the effect of board in the alignment or managerial entrenchment cases.