Ownership Structure, Managerial Behavior and Corporate Value

The nonlinear relationship between corporate value (Tobin's Q) and managerial ownership is well documented. This has commonly been attributed to the onset of managerial entrenchment, which results in a decrease of corporate value for increasing levels of managerial holdings. We propose a more complex structure for the corporate value { managerial ownership function, which accounts for the e®ect of con°icting managerial incentives and external and internal disciplinary monitoring mechanisms. Using this speci ̄cation as the basis for our analysis, we provide evidence that the managerial ownership corporate value relationship is co-deterministic. This ̄nding is at odds with recent work by Cho (1998) and Himmelberg et al. (1999) who report that corporate value determines managerial ownership but not vice-versa.