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RFS Advance Access originally published online on March 26, 2004
Review of Financial Studies 2005 18(2):637-672; doi:10.1093/rfs/hhh010
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The Review of Financial Studies Vol. 18, No. 2 © 2004 The Society for Financial Studies; all rights reserved.

Identifying Control Motives in Managerial Ownership: Evidence from Antitakeover Legislation

Shijun Cheng
University of Michigan

Venky Nagar
University of Michigan

Madhav V. Rajan
Stanford University

Address correspondence to: Madhav Rajan, Graduate School of Business, Stanford University, 518 Memorial Way, Stanford, CA 94305, or e-mail: mrajan{at}gsb.stanford.edu; Fax: 650-725-0468

This study uses the introduction of second-generation antitakeover legislation as a natural experimental setting to infer the value that managers place on the control rights conferred by stock ownership. We conjecture that managers will reduce their stockholdings in the post-legislation period because they can ensure their prior level of control while holding fewer risky shares. Using a variety of specifications, we find robust evidence consistent with this "revealed preference" hypothesis. Further demonstrating the key role played by control considerations in managers' stockholding decisions, the reductions in ownership are concentrated in management teams with higher levels of initial ownership and in firms without poison pills.


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