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Does CEO Ownership Matter for Firm Value? A Study of the Industrial Sector of the Swedish Market.

Lindrud, Lennart LU and Valavanis, Andreas LU (2015) BUSN88 20151
Department of Business Administration
Abstract
The primary objective of this study was to measure the effect of CEO ownership on firm value in the presence of strong external governance. We hypothesized that the concentrated ownership structure in Sweden could make equity incentive programs less relevant. The same hypothesis is tested on a subsample of risky firms as well, categorized as firms that conduct R&D. Using panel data methods and firm-fixed effects to control for endogeneity; we find that the relation between CEO ownership and Tobin’s Q is positive but insignificant for low levels of ownership while it is negative and significant for high levels. For the subsample, the relation is positively significant for low levels of ownership and negatively significant for high levels.... (More)
The primary objective of this study was to measure the effect of CEO ownership on firm value in the presence of strong external governance. We hypothesized that the concentrated ownership structure in Sweden could make equity incentive programs less relevant. The same hypothesis is tested on a subsample of risky firms as well, categorized as firms that conduct R&D. Using panel data methods and firm-fixed effects to control for endogeneity; we find that the relation between CEO ownership and Tobin’s Q is positive but insignificant for low levels of ownership while it is negative and significant for high levels. For the subsample, the relation is positively significant for low levels of ownership and negatively significant for high levels. The results indicate that risky firms are in more need of CEO ownership, so strong external governance is not enough on its own to mitigate agency costs. Furthermore, external governance does not seem to work as a substitute for incentive mechanisms when ownership is large, regardless of whether the firms are risky or not. (Less)
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author
Lindrud, Lennart LU and Valavanis, Andreas LU
supervisor
organization
course
BUSN88 20151
year
type
H1 - Master's Degree (One Year)
subject
keywords
Firm Value, Agency Theory, R&D, Options, CEO Ownership
language
English
id
7513754
date added to LUP
2015-09-15 16:30:11
date last changed
2015-09-15 16:30:11
@misc{7513754,
  abstract     = {The primary objective of this study was to measure the effect of CEO ownership on firm value in the presence of strong external governance. We hypothesized that the concentrated ownership structure in Sweden could make equity incentive programs less relevant. The same hypothesis is tested on a subsample of risky firms as well, categorized as firms that conduct R&D. Using panel data methods and firm-fixed effects to control for endogeneity; we find that the relation between CEO ownership and Tobin’s Q is positive but insignificant for low levels of ownership while it is negative and significant for high levels. For the subsample, the relation is positively significant for low levels of ownership and negatively significant for high levels. The results indicate that risky firms are in more need of CEO ownership, so strong external governance is not enough on its own to mitigate agency costs. Furthermore, external governance does not seem to work as a substitute for incentive mechanisms when ownership is large, regardless of whether the firms are risky or not.},
  author       = {Lindrud, Lennart and Valavanis, Andreas},
  keyword      = {Firm Value,Agency Theory,R&D,Options,CEO Ownership},
  language     = {eng},
  note         = {Student Paper},
  title        = {Does CEO Ownership Matter for Firm Value? A Study of the Industrial Sector of the Swedish Market.},
  year         = {2015},
}