CEO Ownership, Stock Market Performance, and Managerial Discretion




    Search for more papers by this author
    • Ulf von Lilienfeld-Toal is at the Stockholm School of Economics. Stefan Ruenzi is at the University of Mannheim. We thank Cam Harvey (the Editor), an Associate Editor, an anonymous referee, Franklin Allen, Yakov Amihud, Laurent Bach, Efraim Benmelech, Matthias Blonski, Ingolf Dittmann, Darrell Duffie, Alex Edmans, Jay Hartzell, Dirk Jenter, Eugene Kandel, Preston McAfee, Dilip Mookherjee, Alexandra Niessen-Ruenzi, Lasse Pedersen, Jeremy Stein, Bruno Strulovici, Sheridan Titman, and seminar participants at Boston University, Tilburg University, Stockholm School of Economics, University of Bergen, Free University of Berlin, University of Calgary, University of Adelaide, University of Frankfurt, University of Maryland at College Park, University of Texas at Austin, Erasmus University Rotterdam, BI Oslo, Bocconi University, NHH Bergen, Pompeu Fabra Barcelona, Oxford University, Dartmouth University, University of Amsterdam, Vrije University Amsterdam, UNSW Sydney, and the CEPR European Summer Symposium in Financial Markets for helpful comments and suggestions. We also wish to thank Rüdiger Fahlenbrach for sharing his founder CEO data with us and Saumitra Saha for excellent research assistance. Parts of this paper were written while the authors were visiting the Financial and Economic Data Center (FEDC) at Humboldt University, Berlin. This research was supported by the Deutsche Forschungsgemeinschaft through the SFB 649 “Economic Risk.” Financial support from the NASDAQ OMX Nordic Foundation and the Jan Wallanders and Tom Hedelius Foundation is gratefully acknowledged.


We examine the relationship between CEO ownership and stock market performance. A strategy based on public information about managerial ownership delivers annual abnormal returns of 4% to 10%. The effect is strongest among firms with weak external governance, weak product market competition, and large managerial discretion, suggesting that CEO ownership can reverse the negative impact of weak governance. Furthermore, owner-CEOs are value increasing: they reduce empire building and run their firms more efficiently. Overall, our findings indicate that the market does not correctly price the incentive effects of managerial ownership, suggesting interesting feedback effects between corporate finance and asset pricing.