John E. Core and David F. Larcker PERFORMANCE CONSEQUENCES OF MANDATORY

DESPITE THE CENTRAL IMPORTANCE OF THE ISSUE to corporate finance researchers, there is no theoretical or empirical consensus on whether managerial equity ownership affects firm performance. Studies of this issue generally take one of two very different directions, as two seminal studies illustrate. On the one hand, Morck et al. (1988) find that managers’ equity ownership and firm performance is too low for many firms. On the other hand, Demsetz and Lehn (1985) predict that when firms’ ownership levels are optimally determined, there will be no relation between ownership and performance.