Insider ownership and market valuation in South Africa: uncovering the effects of shareholdings by different groups of corporate insiders

Abstract

Purpose: This paper examines the connection between shareholdings by different groups of corporate insiders and market valuation in South Africa using a sample of 169 listed corporations from 2002 to 2007.

Design/methodology/approach: We distinctively employ fixed-effects and two-stage least squares regressions to uniquely examine the effect of shareholdings by employees, chief executive officers, chief financial officers, other executive directors and non-executive directors on market valuation.

Findings: We find that aggregate ownership by all corporate insiders have a positive effect on market valuation. However, when we examine the link between ownership by individual groups of corporate insiders and market valuation, our results suggest that firms with higher ownership by chief executive officers and other executive directors have lower market valuation, but we do not find any evidence that ownership by chief financial officers has any significant effect on market valuation. In contrast, we find that ownership by employees and non-executive directors has a positive effect on market valuation.

Originality/value: Past studies have mostly examined the association between aggregate insider ownership and market valuation. By contrast, there is an acute dearth of evidence on how ownership by different insider groups influences market valuation. Our evidence contributes to the literature by providing evidence on how ownership by different insider groups affects market evaluation. We also innovatively apply a number of econometric models that sufficiently address different types of endogeneities and market valuation measures.

Article type: Research paper

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Identifiers

ORCID for Collins G. Ntim: orcid.org/0000-0002-1042-4056

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