Equity Ownership and the Two Faces of Debt
John J. McConnell and Henri Servaes
Journal of Financial Economics 39, 131-157, 1995

This study examines whether the relationship between equity ownership and firm value varies with the grow opportunities of firms. For high growth firms, it finds that equity ownership is only significant in three out of nine regressions while for low growth firms, it is significant in eight of the nine regressions. This provides some evidence that equity ownership may be more important for low growth firms because managers in these firms can only increase the size of the firm, and consequently the magnitude of their utility, by taking negative present value projects. However, the fact that the coefficient on the equity ownership variable for high growth firms is significantly larger than the coefficient for low growth firms in two of the regressions is inconsistent with the argument and suggests that further work is needed.

Additional Evidence on Equity Ownership and Corporate Value
John J. McConnell and Henri Servaes
Journal of Financial Economics 27, 595-612, 1990

Agency costs between owners and managers arise because the latter group controls the firm without owning it, which gives them strong incentives to take actions that only benefit them. Managers holding equity stakes should, therefore, reduce such costs. However, at too high an equity level, managers may abuse their power by entrenching themselves in firms even in times when their performances warrant their dismissal. Hence, we would expect firm value to rise with managerial equity ownership till an optimal level is reached whereby it will fall. Consistent with the above, the study finds that firm value, as measured by Tobin’s Q, tends to increase with equity ownership till it reaches 40 to 50 percent of managerial compensation, followed by a gradual decline as ownership increases further.

Were the Good Old Days that Good? Changes in Managerial Stock Ownership since the Great Depression
Clifford G. Holderness, Randall S. Kroszner and Dennis P. Sheehan
Journal of Finance 54, 435-469, 1999

This study documents the changes in managerial ownership from 1935 to 1995 and explores reasons for these changes. It finds that ownership has increased from 13% in 1935 to 21% in 1995. Reasons for such changes include factors such as lower volatility of stocks and greater hedging opportunities associated with the development of the financial markets, that lower the risk of managers holding equity. However, the possibility of managerial ownership substituting for alternate corporate governance mechanisms did not find any empirical support.

Understanding the Determinants of Managerial Ownership and the Link between Ownership and Performance
Charles P. Himmelberg, R. Glenn Hubbard and Darius Palia
Journal of Financial Economics 53, 353-384, 1999

An alternate explanation for the relationship between managerial ownership and performance is explored in this study. Previous research has shown that managerial ownership strengthens the incentives of managers to improve the operations of the firms that they manage. This study however, argues that the results of previous studies may be an artifact of model misspecification because they failed to take into account the heterogeneity in contracting environment faced by different firms. Using an improved methodology, the study finds that, after taking into account the contracting environment, the relationship between ownership and performance is no longer robust.