Empirical Studies Have Found That, Across Firms, Tobin's Q Ratio

question 8

Multiple Choice

Empirical studies have found that, across firms, Tobin's Q ratio initially increases with managerial ownership fraction, but beyond a critical level, the ratio decreases with further increases in managerial ownership.One argument for why this ratio decreases at higher managerial ownership levels is that:

• A)board directors no longer believe that they need to monitor management's incentives.
• B)fewer passive shareholders own the firm's stock.
• C)outside blockholders tend to be attracted to firms with high managerial ownership, and outside blockholder ownership generally destroys firm value.
• D)management can use their shares to leverage their entrenched position.

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Definitions:

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