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Managerial Entrenchment and Firm Value: A Dynamic Perspective

Published online by Cambridge University Press:  24 November 2015

Xin Chang  and
Hong Feng Zhang
Xin Chang
Affiliation:
changxin@ntu.edu.sg, Nanyang Technological University, Nanyang Business School, Singapore, and University of Cambridge
Hong Feng Zhang*
Affiliation:
hong.zhang@deakin.edu.au, Deakin University, Deakin Business School, Geelong, Australia.
*
*Corresponding author: hong.zhang@deakin.edu.au
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Abstract

We examine the impact of managerial entrenchment on firm value using a dynamic model with firm fixed effects. To estimate the model, we employ the long-difference technique, which is shown by our simulation to deliver the least biased estimates. Based on a large sample of U.S. companies, we document a significantly negative and causal effect of managerial entrenchment on firm value after taking into account omitted variables, reverse causality, and highly persistent endogenous variables. Additional analysis suggests that the causality running from managerial entrenchment to firm value is more pronounced than that for reverse causality.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 50 , Issue 5 , October 2015 , pp. 1083 - 1103
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2015 

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