| dc.description.abstract | In this thesis, we examine the impact on stock market performance for companies on Oslo
Stock Exchange in which the CEO voluntarily owns a significant fraction of the firm’s equity.
We discuss the findings based on two opposing views; the incentive-alignment hypothesis and
the entrenchment hypothesis. Our research method is based on a trading-strategy where we
construct different portfolios sorted on CEO ownership, using publicly available information.
We examine the relationship between CEO ownership and stock market performance using
monthly stock data from 2010 to 2016.
Using the Fama-French Four Factor Model, we find that firms with high CEO ownership
deliver significant negative abnormal returns compared to the market. Moreover, we find that
the underperformance increases with higher ownership. The results still hold after controlling
for industry effects, and when regressing multivariate regressions where we include a set of
firm-specific control variables combined with industry- and time-fixed effects. We also find
that firms with no CEO ownership underperform compared to the market. The findings
indirectly imply that firms where the CEO owns a small fraction of the firm`s outstanding
shares, but less than 5%, outperform both firms without CEO ownership and firms with CEO
ownership above 5%. The initial positive effect from CEO ownership on stock market
performance indicates improving incentives, while the subsequent negative effect suggests
managerial entrenchment.
We perform additional analysis in order to understand the strong underperformance in the
stock market. First, we examine if high ownership CEOs have been able to secure their
employment at the firm. We observe that these CEOs have a lower probability of being
replaced despite a strong underperformance in the stock market, which indicates that they are
entrenched. Second, we examine various accounting measures of performance and firm
policies to investigate if the strong stock market underperformance might be a consequence of
an entrenched manager pursuing his own self-interest at the shareholders` expense. The
findings are inconclusive, but we find that operating performance, firm policies and equity
risk partly explain the stock market underperformance for firms with high ownership CEOs. | nb_NO |
