Managerial Ownership and Firm ValueEvidence from Small Firms listed in Germany

Using a new data set of small public firms in Germany, this paper analyzes the incentive and entrenchmenteffects associated witrh mangerial equity owernership. The relationship between firm value and insider ownership is found to be nonlinear: at low levels of ownership firm value is positive related to managerial holdings, whereas the relation is negative for higher leves of ownership. Disentangling cash flows and voting rights ogf managing directors, firm value increases with cash flow ownership of top management but decreases with control, in particular with managment voting rights in excess of 25 %. Outside blockholders do not appear to play a role in disciplining management. Codetermination does not affect the value of small firms.