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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26705
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| Title: | Firm Value and Managerial Incentives |
| Authors: | Ljungqvist, Alexander
Habib, Michel |
| Issue Date: | 30-Nov-2000 |
| Series/Report no.: | FIN-00-040 |
| Abstract: | We examine the relation between firm value and managerial incentives in
a sample of 1,307 publicly-held U.S. firms in 1992-1997. As predicted by
Berle and Means (1932), we find that CEOs do not maximize firm value
when they are not the residual claimant: our firms have higher
Tobin’s Q, the higher are CEO stockholdings. We also investigate
the incentive properties of options and find that CEOs appear to hold
too many options and that these options are insufficiently sensitive to
firm risk. Our results do not appear to be driven by endogeneity biases.
To assess the economic significance of the suboptimal provision of
incentives, we compute an explicit performance benchmark which compares
a firm’s actual Tobin’s Q to the Q* of a hypothetica
fully-efficient firm having the same inputs and characteristics as the
original firm. The Q of the average sample firm is around 12% lower than
its Q*, equivalent to a $751 million reduction in its potential market value. |
| URI: | http://hdl.handle.net/2451/26705 |
| Appears in Collections: | Finance Working Papers
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