Additional evidence on equity ownership and corporate value

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Abstract

We investigate the relation between Tobin's Q and the structure of equity ownership for a sample of 1,173 firms for 1976 and 1,093 firms for 1986. We find a significant curvilinear relation between Q and the fraction of common stock owned by corporate insiders. The curve slopes upward until insider ownership reaches approximately 40% to 50% and then slopes slightly downward. We also find a significant positive relation between Q and the fraction of shares owned by institutional investors. The results are consistent with the hypothesis that corporate value is a function of the structure of equity ownership.

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  • Cited by (0)

    This paper has benefited from the helpful comments of Anup Agrawal, Stuart Gilson, Michael Jensen, Stacey Kole, Claudio Loderer, Hamid Mehran, Dennis Sheehan, and Marc Zenner, from a presentation at Boston College, and from the careful research assistance of Jeff Billig and Ken Carow. Servaes is grateful for financial support provided by the Graduate School of Business of the University of Chicago.

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