CEO discretionary power, unconstrained stock ownership, and stock trading: Theory and evidence

IF 1.2 Q3 BUSINESS, FINANCE

Advances in Accounting Pub Date : 2023-06-01 DOI:10.1016/j.adiac.2023.100656

Duanping Hong

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Abstract

This paper examines CEOs' holding and trading of unconstrained firm stock they own, i.e., vested and sellable firm shares. I first develop a theoretical model of why CEOs hold sellable shares in their own firm when doing so is riskier than holding a more diversified portfolio. In this model, greater stock ownership allows the CEO to exercise discretionary power more easily and extract rents from the company. My model predicts that CEOs desire to hold more firm stock and therefore are less likely to sell stock when they have greater discretionary power. This empirical prediction is supported by tests that measure discretionary power based on the principal component analysis of three proxies. Using stock trading data in S&P 1500 firms, I find that discretionary power is negatively (positively) associated with the CEO's stock sale (purchase). The results are weaker in industries where rent extraction is more difficult. Further, results hold for both founder and non-founder CEOs, and are robust to a battery of sensitivity tests. Overall, this study provides new insights concerning CEOs' decisions to own their companies' stock.

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CEO自由裁量权、无约束持股与股票交易：理论与证据

本文考察了首席执行官持有和交易他们所拥有的不受约束的公司股票，即既得和可出售的公司股票。我首先建立了一个理论模型，解释为什么首席执行官持有自己公司的可出售股票，而这样做比持有更多元化的投资组合风险更大。在这种模式中，更大的股票所有权使首席执行官能够更容易地行使自由裁量权，并从公司收取租金。我的模型预测，首席执行官希望持有更多的公司股票，因此当他们拥有更大的自由裁量权时，他们不太可能出售股票。这一实证预测得到了基于三个代理的主成分分析的自由裁量权测试的支持。利用S&；在1500家公司中，我发现自由裁量权与首席执行官的股票买卖呈负（正）相关。在租金提取更加困难的行业，结果较弱。此外，这一结果对创始人和非创始人CEO都适用，并且对一系列敏感性测试来说是稳健的。总的来说，这项研究为首席执行官拥有公司股票的决定提供了新的见解。

本文章由计算机程序翻译，如有差异，请以英文原文为准。

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来源期刊

Advances in Accounting BUSINESS, FINANCE-

CiteScore

2.50

自引率

6.20%

发文量

期刊介绍： Advances in Accounting, incorporating Advances in International Accounting continues to provide an important international forum for discourse among and between academic and practicing accountants on the issues of significance. Emphasis continues to be placed on original commentary, critical analysis and creative research.