Benefits of control, managerial ownership, and the stock returns of acquiring firms

R. Glenn Hubbard, Darius Palia

Research output: Contribution to journalArticlepeer-review

62 Scopus citations

Abstract

This article examines how the benefits to managers of corporate control affect the relationship between managerial ownership and the stock returns of acquiring firms. At low levels of managerial ownership, agency costs of equity (such as perquisite consumption) reduce acquirer returns. At high levels of managerial ownership, managers enjoy nonassignable private benefits of control that they would lose if they sold their ownership stake. These benefits of control are increasing in the managerial ownership stake. Examining mergers between ¡985 and ¡991, we find evidence of a nonmonotonic relationship between the returns earned by acquirers and their managerial ownership level.

Original languageEnglish (US)
Pages (from-to)782-792
Number of pages11
JournalRAND Journal of Economics
Volume26
Issue number4
DOIs
StatePublished - 1995
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics

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