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Consequences of CEOs’ Decisions to Hold Their Own Firm’s Stock

Hong, Duanping (2017) Consequences of CEOs’ Decisions to Hold Their Own Firm’s Stock. Doctoral Dissertation, University of Pittsburgh. (Unpublished)

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CEOs commonly hold large amounts of unconstrained stock in their own firm, i.e., vested shares in addition to any shares required by the firm’s stock ownership requirements or regulatory rules. This dissertation examines the consequences of the CEO owning and holding these additional shares. I begin with a theoretical model of why CEOs hold additional shares in their own firm when doing so is riskier than holding a more diversified portfolio. I establish conditions under which only a mixed-strategy equilibrium is feasible in which the CEO randomizes between holding and selling his additional shares. My model predicts that CEOs who own more unconstrained stock will be more likely to hold their additional shares and that this larger stake in the firm will lead to better future performance by the firm.
These empirical predictions are supported by tests using data on CEO equity holdings in S&P 1500 firms between 1992 and 2014. Specifically, I find that the incentives provided by unconstrained stock are negatively associated with the CEO’s stock selling activity and positively associated with firm performance in each of the subsequent three years. Additional results provide evidence consistent with the CEO’s unconstrained stock influencing future firm performance through the CEO’s choice of productive effort. My results concerning the positive association between unconstrained stock ownership and subsequent firm performance are also robust to the alternative explanation of the CEO’s information advantage over investors and an alternative measure of unconstrained stock that incorporates the firm’s ownership policies.
Overall, this dissertation highlights the importance of the CEO’s unconstrained stock ownership and provides new insight concerning how CEOs’ stock ownership influences their own firm’s performance.


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Item Type: University of Pittsburgh ETD
Status: Unpublished
CreatorsEmailPitt UsernameORCID
Hong, Duanpingdhong4@kennesaw.eduduh3
ETD Committee:
TitleMemberEmail AddressPitt UsernameORCID
Committee CoChairEvans, John
Committee CoChairFeng,
Committee MemberGal-Or,
Committee MemberNagarajan,
Committee MemberSrinivasan,
Date: 30 August 2017
Date Type: Publication
Defense Date: 22 May 2017
Approval Date: 30 August 2017
Submission Date: 4 July 2017
Access Restriction: No restriction; Release the ETD for access worldwide immediately.
Number of Pages: 110
Institution: University of Pittsburgh
Schools and Programs: College of Business Administration > Accounting
Degree: PhD - Doctor of Philosophy
Thesis Type: Doctoral Dissertation
Refereed: Yes
Uncontrolled Keywords: Managerial Incentives, Managerial Ownership, Unconstrained Stock, Agency model, Stock Selling, Firm Performance
Date Deposited: 30 Aug 2017 22:00
Last Modified: 30 Aug 2017 22:00


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