Link Between Executive Stock Ownership and Corporate Financial Performance

Abstract

This study examined the relationship between executive stock ownership and the financial performance of firms in the hospitality industry. The study sample included 30 public hospitality companies listed on NASDAQ, all of which had 14 years of complete financial data. The study used the Pearson correlation and linear regression analysis to test the relationship in the hotel segment, the restaurant segment, and the combined hospitality segment. The results show there is no statistically significant positive relationship between executive stock ownership and firm profit in the hotel segment, whereas in the restaurant segment, there is a negative linear relationship. Furthermore, the combined 30 hospitality companies show a slight negative linear relationship. The findings neither support the "Agency Theory," nor reveal a clear correlation between executive stock ownership and the profit performance of firms in the hospitality group.

Corporate governance mechanisms and firm performance: evidence from the emerging market following the revised CG code

“…Therefore, H4 is not supported. The result supports the entrenchment theory which argues that increase in managerial shareholding will increase voting power of managers which will allow managers to pursue decisions that only cater to their interests (Kwansa et al , 2014). Fifth, institutional ownership (IO) is negatively and significantly associated with ROA and ROE, thus H5 is supported.…”

“…Stemming from the agency cost reduction theory, it is argued that managerial shareholding reduces the costs arising from conflict of interests between managers and shareholders, thus improving access to external finance and reducing cost of capital (Claessens and Yurtoglu, 2013). On the other hand, the entrenchment theory literature argues that increase in managerial shareholding will increase voting power of managers which will allow managers to pursue decisions that only cater to their interests (Kwansa et al, 2014). Weir (1997) find that managers of acquired firms are less motivated to pursue the interests of the shareholders due to holding significantly lower shares in the firms.…”

The Effects of Insider Ownership and Board Composition on Firm Performance in the Restaurant Industry

“…The effect of the corporate governance mechanism on a firm's strategic choices and performance has been widely discussed in the mainstream of finance and strategic management literature since the 1970s (e.g., Jensen & Meckling, 1976;Kesner & Dalton, 1985). However, the characteristics of the hospitality industry, such as higher levels of agency problems (Oak & Iyengar, 2009) and high sensitivity to changes in environments (Guillet & Mattila, 2010), demand a more effective corporate governance system, leading to increased attention to corporate governance in the hospitality industry (e.g., Altin, Kizildag, & Ozdemir, 2016;Chen, Hou, & Lee, 2012;Kwansa, Song, Sharma, & Gong, 2014). In particular, ownership structure is a core component of corporate governance mechanisms (Jensen & Meckling, 1976).…”