External Governance and Ownership Structure

External governance (e.g., takeover) and internal governance (e.g., ownership structure) are the most common mechanisms to solve the agency problem in a corporation. Cremers and Nair (2005) make the first effort to investigate one of the interactions between the two mechanisms by considering G-index and block shareholder ownership. This paper investigates the interaction between G-index and executive ownership. Our tests show that the interaction of two mechanisms generally has negative impact on the firm performance and value. When checking the abnormal returns of portfolios formed by the different combinations of the two mechanism characters, we find both substitution and complementary relation between G-index and executive ownership.