Abstract
Abstract Using a sample of firms listed on the Chinese stock markets from 2003 to 2012, this paper investigates the impact of managerial shareholding on corporate investment decisions and the equity valuation of the growth/adaptation options from the perspective of the real options-based valuation theory. In addition, it examines whether the relationship between managerial shareholding and corporate investment and equity valuation varies with the type of ownership. The empirical results indicate that managerial shareholding can enhance the flexibility of management investment, increasing the equity value attributable to the growth and adaptation options. Further analyses show that such effects are found primarily in private firms.
Highlights
Agency conflict is consistently one of the key issues in corporate governance research
For firms with managerial shareholding, the equity valuation of the growth option (GH*Et/BVt-1) for private firms is higher than that for SOEs, and this difference is significant at the 1% level (P=0.00)
The difference is significant at the 1% level (P=0.01), indicating that managerial shareholding can mitigate the agency conflict, motivate managers to exercise the growth option more efficiently, and increase the equity value attributable to growth option
Summary
Agency conflict is consistently one of the key issues in corporate governance research. This paper investigates whether managerial shareholding can alleviate the problem of agency conflict from the investment perspective; in other words, can it affect investment decisions and equity valuation? The positive role of managerial shareholding is incorporated into the equity valuation of firms, thereby enhancing the equity value attributable to the growth and adaptation options. This study incorporates the agency problem into the analysis framework of “managerial shareholding – the investment flexibility − the equity valuation of the growth and adaptation options”. It further provides empirical evidence of the impact of managerial shareholding on corporate investment and value creation using a sample of Chinese listed firms.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
