Should the managers of a company own sizeable amounts of stock in the company? 

What are the pros and cons?

If the managers have sizeable stock positions in the company, they will have a greater understanding for the valuation of the company. Moreover, they may have incentive to maximize shareholder wealth than they would be in the absence of stock holding. However, to the extent persons have not only there human capital but, also most of their financial capital tied up in the company, they may be more risk averse than is desirable. If the company deteriorates because a risky decision proves bad, they stand to lose not only their jobs but,also have a drop in the value of their assets. Excessive risk aversion can work to determine of maximizing shareholder wealth as can excessive risk seeking ifthe manager is particularly a risk prone.

Answer rating: 100% (QA)

Stock refers to the safety that provides one an ownership stake at a corporation This security gives ... View the full answer