High Levels Of Managerial Ownership Research Articles

Effect of Management Ownership, Industry Auditor Specialization, Audit Complexity and Auditor Switching on Timeliness of Financial Reporting

This study aims to determine the effect of managerial ownership, auditor industry specialization, complexity audit, and auditor switching on the timeliness of submitting financial reports to Energy sector companies listed on the Indonesia Stock Exchange in 2017-2021. The method in this research is a quantitative research method. The population in this study are energy sector companies listed on the Indonesia Stock Exchange during 2017-2020. The sampling technique in this study used a purposive sampling technique with 41 research samples within five years so that a total of 205 research data were obtained. Data analysis used descriptive statistical analysis method and logistic regression analysis using SPSS 26 software. The results showed that managerial ownership, auditor industry specialization, audit complexity had a positive effect on the timeliness of financial reporting, while switching auditors did not affect on the timeliness of financial reporting. The accuracy of submitting financial statements to companies tends to be influenced by factors such as high levels of managerial ownership, auditor industry specialization, and audit complexity, but the presence of switching auditors in the company does not affect the time of submission of financial statements.

The Role of Ownership and Gender on Firms' Performance: Evidence from Portugal

This work aims to examine the relationship between corporate governance (CG) and corporate performance, considering the effect of the COVID-19 pandemic. We consider a sample of Portuguese-listed firms for the period between 2010 and 2020 using a panel data methodology. The main results show that higher levels of managerial ownership and gender diversity may drive higher firm performance. However, no evidence was found that a representation of three or more female directors leads to an increase in performance. Moreover, the results suggest that there is a negative relationship between leverage and performance when we consider a market-based performance measure. Finally, the study found evidence that the COVID-19 pandemic had a negative impact on corporate performance. This study sheds light on the role of ownership and gender on firms' performance. The results of this research can have some implications for academia and policymakers' decisions.

Corporate immunity to the COVID-19 pandemic

We evaluate the connection between corporate characteristics and the reaction of stock returns to COVID-19 cases using data on more than 6,700 firms across 61 economies. The pandemic-induced drop in stock returns was milder among firms with stronger pre-2020 finances (more cash and undrawn credit, less total and short-term debt, and larger profits), less exposure to COVID-19 through global supply chains and customer locations, more corporate social responsibility activities, and less entrenched executives. Furthermore, the stock returns of firms controlled by families (especially through direct holdings and with non-family managers), large corporations, and governments performed better, and those with greater ownership by hedge funds and other asset management companies performed worse. Stock markets positively price small amounts of managerial ownership but negatively price high levels of managerial ownership during the pandemic.

Bank ownership structure, regulations and risk-taking: evidence from commercial banks in Pakistan

This paper conducts the first empirical assessment of the theories concerning the influence of ownership structure on bank risk-taking in the presence of regulations in Pakistan. The sample used in this paper comprises a panel data of 26 banks in Pakistan, for the period from 2000 to 2014. The analysis provides evidence that increase in ownership concentration leads to an increase in bank risk-taking. Managerial ownership is associated with high risk-taking at low and high levels of managerial ownership while at intermediate level, managerial ownership has negative impact on bank risk-taking. Different types of ownership of banks in Pakistan have different impact on risk-taking. While government, family and institutional ownership have a positive impact on bank risk-taking, foreign ownership has a negative impact on bank risk-taking. Furthermore, the results show that capital regulations are important in influencing bank risk-taking with regard to higher ownership concentration. The findings of this paper suggest that the relation between bank risk-taking and capital regulations typically depends on the type of ownership.

Managerial Ownership and Corporate Cash Holdings: Insights from an Emerging Market

1. IntroductionThe reason of holding corporate cash is explained by four motives in economics and finance literature: the transaction motive, the precautionary motive, the tax motive and the agency motive (Bates, Khale, and Stulz, 2009). Keynes (1936) determines two main benefits for holding cash. First, the firm reduces transaction costs to raise funds and also it does not have to liquidate assets in order to make payments. This is called transaction cost motive (Opler, Pinkowitz, Stulz and Williamson, 1999). According to precautionary motive, in case of cash flow shortfalls a firm might not invest in profitable projects if it does not have liquid assets. As a result, a firm holds cash in order to diminish the costs of financial distress (Opler et al., 1999). Third, Foley, Hartzell, Titman and Twite (2007) report that the firms which incur tax consequences related with repatriating foreign earnings hold more cash. This is explained by tax motive (Bates et al., 2009).It is assumed that when agency problems between managers and shareholders are greater, cash is worth less (Pinkowitz, Stulz and Williamson, 2006). In his free cash flow theory, Jensen (1986) states that managers have an incentive to hold large amount of cash for their own objectives rather than shareholders'. By doing so, they increase the assets under their control and gain optional power over the firm's investment decisions (Ferreira and Vilela, 2004). However, it is known that when managers have ownership, they aim to maximise firm value rather than using the firm's resources for their own benefits. Thus, managerial ownership aligns the interests of managers and shareholders and this is called as managerial alignment effect. In addition, when managerial ownership continues to increase managers can not be monitored by shareholders and it is resulted in entrenchment of managers. In this case, managers use the firm's resources for their own private benefits rather than the shareholders'. This is called as managerial entrenchment effect. Following the alignment and entrenchment effects, this study examines whether managerial ownership is effective on cash holding decisions of Turkish firms. To examine the impact of managerial alignment and managerial entrenchment on the cash holdings, the ownership level by managers (MO) and quadratic form of this variable (MO2) are used, respectively. Quadratic form of managerial ownership is a proxy for high level of ownership and thus managerial entrenchment in line with the existing literature (Marchica, 2005). When cash holding ratio is used as a dependent variable, a negative coefficient for MO and a positive coefficient for MO2 are expected. Since high cash holdings cause agency problems of free cash flow (Dittmar et al., 2003), managers should choose less level of cash holdings to behave in line with shareholders' interests. Thus, a negative coefficient for MO variable is expected. In addition, at higher levels of managerial ownership, managers might hold higher level of cash for their own private benefits at the expense of shareholders'. Therefore, a positive coefficient for MO2 variable is expected.So far several studies have already analysed the firm specific characteristics that determine the cash holding preferences of firms. Ozkan and Ozkan (2004) examine the impact of managerial ownership besides firm specific characteristics on cash holding preferences of UK firms for the period between 1984 and 1999. Furthermore, although Uyar and Kuzey (2014) have examined the firm specific characteristics that affect cash holding choices of Turkish firms, they have not investigated whether managerial ownership is effective on this choice. As an emerging market Turkish market has different characteristics. Emerging markets have weaker regulatory environment, weak corporate governance and thus low information disclosure level which results in information asymmetry problem between managers and shareholders. As a result, the firms operate in emerging markets come across with costly external financing (Uyar and Kuzey, 2014). …

Oops! I did it again: Effect of corporate governance and top management team characteristics on the likelihood of product-harm crises

Product-harm crises are ubiquitous in today's marketplace. Prior research has explored the negative consequences associated with these crises and highlighted effective crisis management strategies. Limited attention, however, has been devoted to exploring the antecedents of such crises. The authors use agency theory to explore corporate governance and top management team (TMT) characteristics that impact firms' likelihood of experiencing a product-harm crisis. They argue that family firms, firms with higher levels of managerial ownership, and firms in which the marketing function has a higher influence in the TMT are likely to exhibit a higher strategic emphasis on product quality. Strategic product-quality emphasis, in turn, mediates these firms' lower likelihood of encountering a product-harm crisis. An analysis of 116 S&P 500 firms across 2006–2011 provides considerable support for the authors' arguments. These results have important implications for practitioners and for scholars working in the areas of innovation, family business, and corporate governance.

Dividend policy, managerial ownership and debt financing: A non-parametric perspective

This paper examines the relation between dividend policy, managerial ownership and debt-financing for a large sample of firms listed on NYSE, AMEX and NASDAQ. In addition to standard parametric estimation methods, we use a semi-parametric approach, which helps capture more effectively non-linearities in the data. In line with the alignment effect of managerial ownership, our results support a negative relationship between managerial ownership and dividends when managerial ownership is at relatively low levels. However, this negative relationship turns into a positive one at very high levels of managerial ownership. We also find that the nature of the relationship between managerial ownership and dividends may be more complex than it has been previously thought, and it also differs significantly across firms with different levels of debt/financial constraints. The results are consistent with the view that agency theory provides useful insights but cannot fully explain how firms determine their dividend policy.

The effects of managerial ownership on international and business diversification: Balancing incentives and risks

Research has examined the effects of managerial share ownership on business diversification, typically from the incentive alignment perspective. Yet, share ownership also shifts risk to managers (the efficient managerial contracting perspective). Furthermore, the effects of managerial ownership on international diversification are unexplored. We examine how managerial ownership influences both international and business diversification in light of the trade‐off between incentive alignment and risk bearing. Based on the differing risk profiles of the two types of diversification, we argue that incentive contracts with higher levels of managerial ownership will be inefficient, i.e., counter to shareholder interests—reducing international diversification and increasing business diversification. Our findings support our arguments for international diversification. We find no significant effect for business diversification after accounting for endogeneity and serial correlation. Copyright © 2013 John Wiley & Sons, Ltd.

Impact of Ownership Structure on Debt Equity Ratio: A Static and a Dynamic Analytical Framework

This study examines the determinants of capital structure as part of the agency theory. French corporate structure with its high corporate concentration provides able us to analyze how ownership structure affects debt policy. Emphasis is placed on the role of insiders and outsiders ownership in explaining the debt ratio. The empirical study examined a sample of French companies listed on SBF 250 index and observed over the period 1997-2007. Test results show a non linear relationship between managerial ownership and capital structure. Outside shareholdings do not play a disciplinary role to effectively control the behavior of managers in a static framework. However, for high levels of managerial ownership, outside shareholdings does not significantly affect debt ratio. In addition, in a dynamic framework, we document a negative and a significant effect of external investors on debt equity ratio. Furthermore, the effect of management ownership is not significant.

Top manager ownership levels and incentive alignment in inventively active firms

Purpose – Firms that pursue invention face special conditions that heighten the potential conflict between managers and shareholders. High R&D spending increases the information asymmetry between managers and shareholders because the invention process is rooted in tacit knowledge. Because tacit knowledge is difficult to communicate to external parties, shareholders will have problems monitoring whether managers are spending R&D in a manner that maximizes firm value.Design/methodology/approach – Using agency theory, it is argued that managerial ownership is one solution to this problem and that high levels of R&D intensity will necessitate high levels of managerial ownership to counteract agency problems. However, it is also argued based on signaling theory that a firm's patenting activity reduces ownership requirement as well as moderating the managerial ownership‐R&D relationship.Findings – Using a sample of firms from the knowledge‐intensive biotechnology industry, a positive relationship was found betw...

Non-compliance with Australian stock exchange recommendations on board independence

An agency theory perspective is adopted to explain the high levels of non-compliance with recommendations concerning board structure of the Australian Stock Exchange’s (ASX) Corporate Governance Principles and Recommendations. The study compares groups of compliers and non-compliers drawn from members of the ASX All Ordinaries Index. The results indicate that, in the presence of mitigating factors such as less complexity, higher levels of managerial ownership of equity and higher ownership concentration, entities are less likely to comply with the recommendations on board independence. The results suggest that the compliance decision might be influenced by mitigating factors that reduce the need for board independence.

Managerial Ownership and Accounting Conservatism in Japan: A Test of Management Entrenchment Effect

Abstract: We examine the effect of managerial ownership on the demand for accounting conservatism in Japan. We find that within the low and high levels of managerial ownership, managerial ownership is significantly negatively related to the asymmetric timeliness of earnings, which is consistent with the implication of the incentive alignment effect. We also find a significant positive relationship between managerial ownership and the asymmetric timeliness of earnings for the intermediate levels of managerial ownership, as suggested by the management entrenchment effect. These evidences suggest the possibility that accounting conservatism contributes to addressing the agency problem between managers and shareholders.

Role of Managerial Incentives and Discretion in Hedge Fund Performance

ABSTRACTUsing a comprehensive hedge fund database, we examine the role of managerial incentives and discretion in hedge fund performance. Hedge funds with greater managerial incentives, proxied by the delta of the option‐like incentive fee contracts, higher levels of managerial ownership, and the inclusion of high‐water mark provisions in the incentive contracts, are associated with superior performance. The incentive fee percentage rate by itself does not explain performance. We also find that funds with a higher degree of managerial discretion, proxied by longer lockup, notice, and redemption periods, deliver superior performance. These results are robust to using alternative performance measures and controlling for different data‐related biases.

Reexamining the managerial ownership effect on firm value

Whether equity-based compensation and equity ownership align the interests of managers with stockholders is an important question in finance. Early studies found an inverted U-shaped relation between managerial ownership and firm value, but later studies using firm fixed effects found no relation. Managerial ownership levels change very slowly over time which may mask an ownership effect on firm value when using a fixed effect model. This is due to a much smaller within firm variation than between firm variation. We demonstrate that using pay-performance semi-elasticity, rather than pay-performance sensitivity as a measure of managerial ownership incentives, results in meaningful variation within firm over time. The greater within firm variation increases the power to detect a relation between managerial ownership and firm value with fixed effect regressions. As in the early research on this issue, we find a significant inverted U-shaped relation between managerial ownership and Tobin's Q in fixed effects regressions and after controlling for endogeneity with both two-stage and three-stage least squares regressions. Our results are consistent with incentive alignment at low levels and risk aversion at high levels of managerial ownership.

Managerial ownership and performance

This study revisits the classical debate about the nature of the relationship between managerial ownership and corporate performance by using a semi-parametric estimation approach. The semi-parametric approach helps sidestep concerns associated with the potential misspecification of parametric models (e.g., the arbitrary choice of a fixed number and/or location of turning points) and enables the consideration of a wider range of non-linear behaviors. The empirical results support the existence of the initial alignment effect of managerial ownership at levels lower than 15%, while they do not lead to a strong inference on the relationship between managerial ownership and corporate performance for intermediate and high levels of managerial ownership. The results cast doubt on the findings of recent studies on the subject, which critically rely on fully parametric methods, and instead suggest the use of semi-parametric methods in estimating the shape of the ownership-performance curve.

Corporate performance, managerial ownership and endogeneity: A simultaneous equations analysis for the Athens stock exchange

This paper investigates the relationship between managerial ownership and firm performance by considering the endogenous nature of the ownership variables. We conducted our analysis by applying a simultaneous equations framework. We empirically controlled the direction and significance of this relationship, using a panel comprised of 146 firms quoted on the Athens Stock Exchange between 2000 and 2004. The main findings of our analysis indicated that when managerial ownership is treated as endogenous, there is a positive impact on corporate value. Given the particularly high degree of managerial ownership that is observed in the firms listed in the Athens Stock Exchange, we argue that the estimated positive relationship can be mainly explained by the existing high levels of managerial ownership.

Managerial Risk, Innovation, and Organizational Decline

This article introduces managers' personal risk considerations into the relationship between organizational decline and innovation. The agency-based perspective is used to complement threat rigidity theory and prospect theory in examining how managerial ownership and slack resources affect managers' innovation decisions when firms experience poor performance. The findings indicate that more managerial ownership decelerates innovation spending. The availability of slack resources also reduces the rate of innovation investments. Firms with more slack resources and higher levels of managerial ownership jointly reduce innovation under circumstances of decline. Last, poorly performing firms that continue investments in innovation exhibit a lower probability of survival.

The non-linear relationship between managerial ownership and firm performance

We investigate the relationship between operating performance and ownership structure using a sample of Italian IPO-firms in the period 1995-1999. Overall, we find that their performance declines after the IPO. We find evidence of a non-linear relationship between ownership and performance using different measures of operating performance and managerial ownership. This result supports the hypothesis of a combined effect of ownership on firm performance, with a positive effect at low and high levels of managerial ownership (alignment of interest hypothesis) and a negative effect at intermediate levels (entrenchment hypothesis)

Role of Managerial Incentives and Discretion in Hedge Fund Performance

Using a comprehensive hedge fund database, we examine the role of managerial incentives and discretion in hedge fund performance. Hedge funds with greater managerial incentives, proxied by the delta of the option-like incentive fee contracts, higher levels of managerial ownership, and the inclusion of high-water mark provisions in the incentive contracts, are associated with superior performance. The incentive fee percentage rate by itself does not explain performance. We also find that funds with a higher degree of managerial discretion, proxied by longer lockup, notice, and redemption periods, deliver superior performance. These results are robust to using alternative performance measures and controlling for different data-related biases.

The Impact of Managerial Ownership on the Likelihood of Provision of High Quality Auditing Services

This study investigates the relation between managerial ownership and the audit quality of the firm. In modern corporations, the separation of ownership and control creates incentives for managers to maximize their own wealth at the expense of shareholders (Jensen and Meckling 1976). Manager‐owners thus have an incentive to reduce associated agency costs by providing high quality auditing. High audit quality should thus be increasing as managerial ownership decreases. A related agency problem is that of entrenchment‐ whereby managers, by virtue of their increased voting power, have increasing power to shirk and procure perquisites at shareholders' expense. The associated increasing agency risk implies that, when the risk of entrenchment decreases, the need, and thus provision, of high audit quality should also decrease. Based on these arguments, and following prior empirical research, we posit and find that at low and high levels of managerial ownership (below 5% and above 25%), where entrenchment is not increasing, audit quality is decreasing in managerial ownership. At intermediate levels, where entrenchment arguably does increase, it is unclear which effect (divergence‐of‐interests or entrenchment) dominates. For our sample, we document a negative association in this region, a result consistent with the notion that divergence‐of‐interests is the primary agency‐related determinant of audit quality at all levels.