Formal vs. psychological ownership: A psychological perspective on firm ownership

Ownership is pervasive in organization studies. However, past research has been preoccupied with concepts and functions of ownership from a formal and narrow legal-economic perspective, paying inadequate attention to the more expressive, relational, and meaning-giving roles of psychologically experienced ownership. The present study attempts to expand our understanding of ownership by investigating how CEO ownership of the firm, both formal and psychological, regulates CEOs’ emotional response to disappointing firm performance. We theorize that both types of ownership strengthen the relationship between negative performance feedback of firms and negative sentiment displayed by CEOs, and more importantly we submit that psychological ownership takes precedence over formal ownership in inducing CEOs’ emotional response. Using earnings call data, we employ Natural Language Processing (NLP) to measure CEO’s psychological ownership and contrast it with their formal ownership as moderators of the relationship between negative performance feedback and negative sentiment. We find that psychological ownership strengthens this main relationship above and beyond formal ownership, but formal ownership does not strengthen this relationship above and beyond psychological ownership. Such asymmetric conditioning indicates a key virtue of psychological ownership, i.e., its agency-problem mitigation effects do not require the presence of the ‘right’ amount of formal ownership. Our study contributes to a more nuanced view of ownership, explicates CEOs’ negative evaluations based on disappointing performance is contingent on ownership, and offers a computational approach to measure CEO’s psychological ownership.

Keywords: Psychological ownership, Firm ownership, Emotions, Performance feedback, Chief Executive Officer, Natural Language Processing.