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RFS Advance Access published online on March 26, 2004
Review of Financial Studies, doi:10.1093/rfs/hhh010
Review of Financial Studies © The Society for Financial Studies 2004; all rights reserved
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The Review of Financial Studies © The Society for Financial Studies 2004; all rights reserved.

Original Articles

Identifying Control Motives in Managerial Ownership: Evidence from Antitakeover Legislation

Shijun Cheng 1, Venky Nagar 1, and Madhav V. Rajan 2*
1 University of Michigan
2 Stanford University

* To whom correspondence should be addressed. E-mail: mrajan{at}gsb.stanford.edu.


  Abstract

This study uses the introduction of second-generation antitakeover legislation as a natural experiment 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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