The Direction of Causality between Insider Ownership and Market Valuation

Torben Pedersen, Steen Thomsen, Hans Kurt Kvist

    Publikation: Working paperForskning

    Resumé

    The causal relationship between insider ownership and market valuation is tested on a database of the largest EU and US companies. Using a Granger causality test insider ownership (measured by the fraction of closely held shares) is found to have a negative effect on market valuation (measured as the simple Tobin's Q ratio). And market valuation is found to have a negative effect on insider ownership. Consistent with an overall non-linear relationship as hypothesised by Morck et al. (1988) and Stultz (1988), the negative effect from insider ownership to performance is found to be significant only for companies with high initial levels of insider ownership, but insignificant for companies with low initial concentration levels. Furthermore, the effect on market valuation turns out to depend on system affiliation: it is only significant in continental Europe where average insider ownership is much higher than in the Anglo-American world (UK and US).
    OriginalsprogEngelsk
    Udgivelses stedKøbenhavn
    UdgiverCopenhagen Business School, CBS
    Antal sider31
    StatusUdgivet - 2001

    Emneord

    • Insider ownership
    • Market valuation
    • Granger causality
    • System effects
    • Panel data analysis

    Citer dette

    Pedersen, T., Thomsen, S., & Kvist, H. K. (2001). The Direction of Causality between Insider Ownership and Market Valuation. København: Copenhagen Business School, CBS.
    Pedersen, Torben ; Thomsen, Steen ; Kvist, Hans Kurt. / The Direction of Causality between Insider Ownership and Market Valuation. København : Copenhagen Business School, CBS, 2001.
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    abstract = "The causal relationship between insider ownership and market valuation is tested on a database of the largest EU and US companies. Using a Granger causality test insider ownership (measured by the fraction of closely held shares) is found to have a negative effect on market valuation (measured as the simple Tobin's Q ratio). And market valuation is found to have a negative effect on insider ownership. Consistent with an overall non-linear relationship as hypothesised by Morck et al. (1988) and Stultz (1988), the negative effect from insider ownership to performance is found to be significant only for companies with high initial levels of insider ownership, but insignificant for companies with low initial concentration levels. Furthermore, the effect on market valuation turns out to depend on system affiliation: it is only significant in continental Europe where average insider ownership is much higher than in the Anglo-American world (UK and US).",
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    Pedersen, T, Thomsen, S & Kvist, HK 2001 'The Direction of Causality between Insider Ownership and Market Valuation' Copenhagen Business School, CBS, København.

    The Direction of Causality between Insider Ownership and Market Valuation. / Pedersen, Torben; Thomsen, Steen; Kvist, Hans Kurt.

    København : Copenhagen Business School, CBS, 2001.

    Publikation: Working paperForskning

    TY - UNPB

    T1 - The Direction of Causality between Insider Ownership and Market Valuation

    AU - Pedersen, Torben

    AU - Thomsen, Steen

    AU - Kvist, Hans Kurt

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    N2 - The causal relationship between insider ownership and market valuation is tested on a database of the largest EU and US companies. Using a Granger causality test insider ownership (measured by the fraction of closely held shares) is found to have a negative effect on market valuation (measured as the simple Tobin's Q ratio). And market valuation is found to have a negative effect on insider ownership. Consistent with an overall non-linear relationship as hypothesised by Morck et al. (1988) and Stultz (1988), the negative effect from insider ownership to performance is found to be significant only for companies with high initial levels of insider ownership, but insignificant for companies with low initial concentration levels. Furthermore, the effect on market valuation turns out to depend on system affiliation: it is only significant in continental Europe where average insider ownership is much higher than in the Anglo-American world (UK and US).

    AB - The causal relationship between insider ownership and market valuation is tested on a database of the largest EU and US companies. Using a Granger causality test insider ownership (measured by the fraction of closely held shares) is found to have a negative effect on market valuation (measured as the simple Tobin's Q ratio). And market valuation is found to have a negative effect on insider ownership. Consistent with an overall non-linear relationship as hypothesised by Morck et al. (1988) and Stultz (1988), the negative effect from insider ownership to performance is found to be significant only for companies with high initial levels of insider ownership, but insignificant for companies with low initial concentration levels. Furthermore, the effect on market valuation turns out to depend on system affiliation: it is only significant in continental Europe where average insider ownership is much higher than in the Anglo-American world (UK and US).

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    KW - Market valuation

    KW - Granger causality

    KW - System effects

    KW - Panel data analysis

    KW - Insider ownership

    KW - Market valuation

    KW - Granger causality

    KW - System effects

    KW - Panel data analysis

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    Pedersen T, Thomsen S, Kvist HK. The Direction of Causality between Insider Ownership and Market Valuation. København: Copenhagen Business School, CBS. 2001.