Equity ownership and corporate value

Abstract

This paper investigates empirically the relation between Tobin's Q and the structure of equity ownership for a sample of 1173 firms for 1976 and 1093 firms for 1986. We find a significant quadratic relation between Q and the fraction of common stock owned by corporate insiders. The curve slopes upward until insider ownership reaches approximately 40% to 50% and then slopes downward. Additionally, we find a significant positive relation between Q and the fraction of shares owned by institutional investors. The results are consistent with the argument that corporate value is a function of equity ownership structure.