Three essays on ownership studies

The first paper re-examines the quadratic relationship between insider ownership and corporate performance with a panel data of 1230 firms over the period 1991-2000. The results support the view that the relationship between insider ownership and corporate performance should be a firm-specific one. In other words, the regression coefficient on insider ownership should be heterogeneous. Using linear mixed effects model, the paper finds that the quadratic relationship is spurious if we allow for heterogeneity in the coefficient on insider ownership. The results are not sensitive to various robustness checks. The second paper examines the relationship between insider Ownership and corporate payouts for 503 firms over the period 1993-2000. This paper finds that once lagged dependent variable is considered, its effect has important influence on the current level of the dependent variable. In addition, some firm characteristics that were useful to explain the two key variables are no longer statistically significant. The findings are consistent with the views that firms adjust to their target insider ownership (corporate payouts) gradually over time due to the presence of adjustment costs and that to ignore such lagged effects may produce a spurious relationship between the two variables and these firm characteristics. But there is some evidence that insider ownership affects corporate payouts but not vice versa. In addition, the effect of insider ownership on corporate payouts seems to be a nonlinear one. Investment opportunities and free cash flow help explain the adjustment speed of corporate payouts while the volatility of free cash flow can explain the adjustment speed of insider ownership. The third paper presents an empirical investigation of the relationship between insider ownership and corporate performance. This investigation uses the similar framework of the second paper to examine how insider ownership and corporate performance are related in the presence of adjustment costs. Once we properly model the adjustment costs, any relationship between insider ownership and corporate performance turns out to spurious. In addition, firm size and a dummy variable that controls for the possibility that firms who report advertising expenditures are different from non-reporting firms can explain adjustment speed