Does Managerial Ownership Influence Corporate Value? Evidence from UK Corporation Tax Reform of 1984
Imanueli D. Mnzava* (Lecturer- Institute of Finance Management, Dar es Salaam, Tanzania )
Download Article | Published On 03/07/2006


This paper integrates corporate governance and capital structure issues by testing whether and how managerial ownership influenced the responsiveness of firms to the corporation tax reforms of 1984 in the UK. The corporation tax reform of 1984 involved a significant change in tax -related capital structure variables which implied a significant adjustment of capital structures of the firm managed by the value- maximising managers. The paper uses OLS method (i.e. regression analysis) to test a non -linear relationship between managerial ownership and performance and then tests whether there is any relationship between managerial ownership and changes in capital structure variables as predicted by corporate fmance theory. The empirical res-ults support the non-linear(cubic) form of relationship between managerial ownership and performance. The results support the view that small fmns are associated with high performance and vice versa. 1 The results also show that fmns with high performance measures tend to have adjusted their debt-equity ratios downward during the tax reform period. The results also support the argument that changes in the debt-equity ratio and investments due to the corporation tax reform of 1984 are both negatively correlated to managerial ownership

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