Given the governance issues arising from the separation of ownership from control,
the ability to align managerial and shareholder interests via the managerial ownership
of equity is an important topic of inquiry. The findings of the primarily US based
literature suggest that management is aligned at low and possibly high levels of
ownership but is entrenched (pursuing self interests) at intermediate ownership levels.
This paper extends the US based literature in a number of important ways. First,
the analysis is extended to the UK where
there are important differences, as compared to the US, in the governance system.
A comparative analysis of key differences between the US and UK governance systems
suggest that management should become entrenched at higher levels of ownership in
the UK. Some of the reasons for this suggestion are that in the UK management do
not have the same freedom as their US counterparts to mount takeover defenses and
institutional investors in the UK are more able to co-ordinate their monitoring activities.
The empirical results of the paper confirm that UK management become entrenched at
higher levels of ownership than their US counterparts. Second, the results from extending
the analysis to
consider different measures of firm performance and a more generalized form of the
relationship confirm the general finding of the US literature of a non-linear relationship
between firm performance and managerial ownership.