| According to conventional wisdom, increased stock ownership by firm executives leads to increased returns to shareholders and the executive owners as the interests of shareholders and executives are brought more into line. Claims are made that “(s)uch ownership can be worth several percentage points in returns to shareholders.” (Kay 1999). In the empirical research literature arguments are made that direct share ownership by the CEO represents the most powerful connection between shareholder wealth and executive wealth and researchers have detected a management ownership-firm relationship. However, the findings have not been consistent, as the performance and insider ownership measures have varied from study to study.; More significantly, much of the empirical literature has used cross-sectional data. But it cannot reliably establish whether causality flows from ownership to performance or from performance to ownership. Measures of firm performance have also varied from study to study. Performance measures have included financial measures such as Tobin's Q, accounting measures such as Return on Assets and net profit, and measures of returns to shareholders.; Based on these findings, a substantial question about the nature, direction and strength of the relationship between executive stockholdings and firm financial performance still exists. This paper examines the executive ownership-firm financial performance relationship in the context of approximately 500 high technology firms. The use of panel data from 1994–1997 corrects for the cross-sectional problem underlying much of the previous empirical research. Firm performance is measured in three ways: financial performance, accounting performance, and market performance. By increasing the number of measures of ownership, greater accuracy and detail in measuring any ownership-performance effects are obtained. Previous research typically employs one to three measures of firm performance. This paper considers eight measures of management and board ownership and insider ownership.; The results indicate that the overall ability of management ownership to explain changes in sample firm performance is quite small. Increasing levels of management ownership does not appear to be the universal path to firm performance. Instead, it has a small, but distinct, effect for firms with minority management ownership. |
