Managerial ownership and firm performance: An analysis using switching simultaneous-equations models

This paper uses a switching simultaneous-equations model to examine the relation between managerial ownership and firm performance. The model includes a multinomial logit for the firm's choice among three regimes of large-block ownership, which can be argued as the choice among different degrees of controlling-minority structures, and three simultaneous-equations systems of managerial ownership and performance for each ownership regime. The paper argues that the choice of ownership regimes is the firm's endogenous decision as a reflection of the firm-specific organizational and transactional attributes, and hence the impact of managerial ownership on performance varies across firms belonging to different regimes. Empirical results show that family involvement in the management and significant related-party transactions are important factors to determine the firm's choice of ownership regimes. Evidence also indicates that the patterns of the relation between managerial ownership and firm performance, in the sense that the inflection points for the impact of managerial ownership turning from positive to negative, are markedly different across ownership regimes. Interpretations consistent with the endogeneity of managerial ownership are provided.