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| Author: | Kim, E.H. Lu, Y. |
| Title: | CEO ownership, external governance and risk-taking |
| Journal: | Journal of Financial Economics
2011 : NOV, VOL. 102:2, p. 272-292 |
| Index terms: | companies r&d employee ownership agency theory corporate governance chief executive officers |
| Language: | eng |
| Abstract: | This article shows the relation between CEO ownership and firm valuation hinging critically on the strength of external governance (EG). The relation is hump-shaped in the case of weak EG, and insignificant when EG is strong. This implies that CEO ownership and EG are substitutes for diminishing agency problems when ownership is low. However, very high levels of share ownership may lower firm value by entrenching the CEO and discouraging his risk-taking, unless mitigated by strong EG. We identify channels through which CEO ownership impacts firm value by examining R&D, a discretionary and risky field. CEO ownership is found to similarly exhibit a hump-shaped relation with R&D when EG is weak, but no relation when EG is strong. The results are robust to endogeneous CEO ownership and EG. |
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