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Changes in Management Ownership and the Valuation Effects of Equity Offerings

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  • Marco Bigelli
  • Vikas Mehrotra
  • Randall Morck
  • Wayne Yu

Abstract

Seasoned equity issues trigger share price declines, and this is usually interpreted as evidence of signalling. We find that seasoned equity issues also typically result in much lower managerial ownership in U.S. firms. Jensen and Meckling (1976) predict a stock price decline when managerial ownership falls. We conduct several tests to distinguish agency explanations form signalling explanations, and conclude that both effects are present. Copyright Kluwer Academic Publishers 1998

Suggested Citation

  • Marco Bigelli & Vikas Mehrotra & Randall Morck & Wayne Yu, 1998. "Changes in Management Ownership and the Valuation Effects of Equity Offerings," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 2(4), pages 297-309, December.
    • Handle: RePEc:kap:jmgtgv:v:2:y:1998:i:4:p:297-309
    DOI: 10.1023/A:1009963405008
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    References listed on IDEAS

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    1. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    2. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    3. Stulz, ReneM., 1988. "Managerial control of voting rights : Financing policies and the market for corporate control," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 25-54, January.
    4. Hess, Alan C & Bhagat, Sanjai, 1986. "Size Effects of Seasoned Stock Issues: Empirical Evidence," The Journal of Business, University of Chicago Press, vol. 59(4), pages 567-584, October.
    5. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    6. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
    7. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation," Scholarly Articles 29407535, Harvard University Department of Economics.
    8. McConnell, John J. & Servaes, Henri, 1990. "Additional evidence on equity ownership and corporate value," Journal of Financial Economics, Elsevier, vol. 27(2), pages 595-612, October.
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