Ownership Structure, Financial Policy and Performance of the Firm: US Evidence
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The objective of this article is to determine the interrelations between the ownership structure and the financial policy as well as the relationship between the managerial ownership and the performance of the firm. This study examines the relationship between the ownership structure and the performance when the managerial ownership is modeled as en endogenous variable. The regressions results show that all the shareholders regardless their types (manager, blockholder or institutional) do not tend to hold substantial ownership in the high levered firms because of the high bankruptcy risk. The non linear relationship between the managerial ownership and the performance of the firm strengthens the earlier US studies showing that some levels of the managerial ownership are not beneficial to the shareholders’ wealth. The results of the simultaneous equations show that the entrenched managers avoid the debt in order to escape the performance pressure and to protect their non diversifiable human capital.