Threshold Effect of Managerial Ownership on Firm Value: Again Test by using the PSTR Model

Previous studies show conflicting results about the effects of managerial ownership on firm value; this inconsistency in results could be due to nonlinear effects of managerial ownership on firm value. Accordingly, this paper investigates the threshold effects of managerial ownership on the value of listed companies in Tehran Stock Exchange for the period of 2010 to 2015, using Panel Smooth Transition Regression (PSTR) model as one of the most prominent regime-switching models. The linearity test results indicate strongly nonlinear relationship among variables under consideration. Moreover, considering one transition function and one threshold parameter, as a two regime model, is sufficient to specification of nonlinear relationship among variables. The results indicate that threshold level is 72.58 percent and the estimated slope parameter is 2.64. In the first regime, managerial ownership has a positive effect on firm value (confirmation the hypotheses convergence of interests) that after crossing the threshold level, in the second regime, this impact is negative (hypothesis barricades). Therefore has been confirmed a relationship in the form of an inverted U between managerial ownership and firm value.