Identifying Control Motives in Managerial Ownership: Evidence from Antitakeover Legislation

This study uses the introduction of second-generation antitakeover legislation as a natural experimental setting to infer the value that managers place on the control rights conferred by stock ownership. We conjecture that managers will reduce their stockholdings in the post-legislation period because they can ensure their prior level of control while holding fewer risky shares. Using a variety of specifications, we find robust evidence consistent with this "revealed preference" hypothesis. Further demonstrating the key role played by control considerations in managers' stockholding decisions, the reductions in ownership are concentrated in management teams with higher levels of initial ownership and in firms without poison pills.