Managerial share ownership and operating performance: do independent and executive directors have different incentives?

We investigate the relationship between managerial share ownership (MSO) and earnings as a measure of operating performance in Australia. To mitigate potential earnings management, we also use discretionary accrual adjusted earnings as an alternative measure of performance. We document a negative relation between MSO and performance followed by a positive relation. We suggest that these unique results are an artefact of certain Australian institutional features and imply that the ownership-performance relation is context-specific, with the wider corporate governance systems influencing the theorised incentive effects. We also posit that executive directors and independent directors have different ownership-performance incentives. Our results are consistent with this proposition and suggest that independent directors may be immune to the theorised incentive alignment or entrenchment effects associated with share ownership.