This article investigates whether government ownership in publicly listed firms of Gulf Cooperation Council (GCC) countries affects the behaviour of CEOs who are granted stock incentives, that is, an ownership stake in these firms. The results suggest that government ownership may create an environment that could be abused by these managers. In particular, we find that when government ownership reaches a certain threshold, the alignment effect of CEO stock incentives is reversed such that borrowing increases; capital expenditure decreases; selling, general and administrative (SGA) expenses increase; and firm performance decreases with the level of CEO stock incentives. Our results could have implications for investors and policymakers in GCC countries, and other developing markets, where governments usually have substantial equity stakes in some publicly listed firms.
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