The Effect of Managerial Ownership on the Short- and Long-run Response to Cash Distributions

We examine both the short-run and long-run responses to the following corporate cash flow transactions: dividend increases and decreases, dividend initiations, and tender offer repurchases. Our focus is the short-run and long-run effects of managerial ownership. We hypothesize that ownership plays an important role in explaining the announcement effects for these events, owing to signaling effects and the reduction of agency problems. Our short-run results accord well with the earlier work on announcement effects for these events and show that firms with high insider ownership exhibit higher excess returns. Our long-term results indicate a drift over a three-year period following the announcement, with the excess returns for the high insider-ownership group becoming more pronounced. Copyright 2003 by the Eastern Finance Association.