Page info: *Author:Mathiesen, H. *Document version:2.0. *Copyright 1997-2019, H. Mathiesen.Legal notice.


Exhibition: The theories on ownership and performance


Introduction: This table lists all the main theories about managerial ownership and financial performance. The following three items of information are provided: 1) Hypothesis and associated sign of derivative. 2) Underlying theory and possible sub-argument of hypothesis. 3) Implied causality and timing of hypothesis. It should also be noted that is notation for financial performance at time t+1 as expected at time t. For a review of the theories below see, Mathiesen [2002, Chapter 2]. Get dissertation.

Hypothesis and derivatives:

Theory or argument:


Causality and timing:

Hypothesis 1:

Incentive alignment theory

Hypothesis 2:

General entrenchment argument

     Impeding owner and creditor control

     Impeding market for managerial labor

     Impeding market for corporate control

     Diminishing utility of profit maximization

Cost of capital argument

     Less market liquidity

     Poor portfolio diversification

Hypothesis 3:

for some Ow

for other Ow

Stulz's integrated theory

    Takeover premium argument

    Takeover entrenchment argument

Morck et al.'s combined argument

     Incentive alignment argument

     General entrenchment argument

Hypothesis 4:

Reward argument

Insider reward argument

Insider investment argument

Hypothesis 5:


Natural selection argument

Mutual neutralization arguments

     Incentives v. entrenchment & cost of capital

     Incentives v. free cash flows

     Imperfect selection argument



-Copyright 1997-2019, H. Mathiesen. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.Legal notice.