Managerial Ownership and Firm Performance in Listed Danish Firms:

Conventional wisdom argues that managerial ownership may alleviate agency costs due to the separation of ownership and control. The reason is that a higher ownership stake by insiders may help to align the interests of management and shareholders, since management, to a larger extent, becomes a residual claimant. The existing evidence very often relies on data where dispersed ownership combined with a common law tradition are key institutional ingredients. However, it does not provide clear support for the hypothesis that increased managerial ownership improves firm performance. This study contributes to the search for the missing link using a sample in which the institutional framework differs from the Anglo-American system. Specifically, the article conducts a cross-sectional regression analysis of a sample of listed Danish firms testing whether increased managerial ownership is associated with superior firm financial performance measured by Tobin's q. The results reveal that the hypothesis must be rejected. Instead, using three stage least squares analysis shows that increased firm performance results in a higher managerial ownership stake.