Performance Consequences of Mandatory Increases in Executive Stock Ownership

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Accounting Papers
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managerial ownership
corporate governance
financial performance
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Core, John E
Larcker, David F
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We examine a sample of firms that adopt “target ownership plans”, under which managers are required to own a minimum amount of stock. We find that prior to plan adoption, such firms exhibit low managerial equity ownership and low stock price performance. Managerial equity ownership increases significantly in the two years following plan adoption. We also observe that excess accounting returns and stock returns are higher after the plan is adopted. Thus, for our sample of firms, the required increases in the level of managerial equity ownership result in improvements in firm performance.

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2002-06-01
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Journal of Financial Economics
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At the time of publication, John Core was pursuing a PhD from the Wharton School, University of Pennsylvania; he is now the Nanyang Technological University Professor and a Professor of Accounting at the MIT Sloan School of Management.
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