Governance Through Trading and Intervention: A Theory of Multiple Blockholders
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Manso_Governance through.pdf
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450.35 KB
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Adobe PDF
Checksum (MD5)
530844f196fcb7348ede6c01f79e63c4
Author(s)
Edmans, Alex
Manso, Gustavo
Date Issued
December 2010
Journal
Review of Financial Studies
Publisher
Oxford University Press for the Society for Financial Studies
Citation
Edmans, Alex, and Gustavo Manso. “Governance Through Trading and Intervention: A Theory of Multiple Blockholders.” Review of Financial Studies (2010) 24(7): 2395-2428.
Version
Author's final manuscript
Abstract
Traditional theories argue that governance is strongest under a single large blockholder, as she has high incentives to undertake value-enhancing interventions. However, most firms are held by multiple small blockholders. This article shows that, while such a structure generates free-rider problems that hinder intervention, the same coordination difficulties strengthen a second governance mechanism: disciplining the manager through trading. Since multiple blockholders cannot coordinate to limit their orders and maximize combined trading profits, they trade competitively, impounding more information into prices. This strengthens the threat of disciplinary trading, inducing higher managerial effort. The optimal blockholder structure depends on the relative effectiveness of manager and blockholder effort, the complementarities in their outputs, information asymmetry, liquidity, monitoring costs, and the manager's contract.
Description
http://rfs.oxfordjournals.org/content/early/2010/12/13/rfs.hhq145.full.pdf+html
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike 3.0
Persistent DSpace Link
DOI of Published Version
http://dx.doi.org/10.1093/rfs/hhq145
https://doi.org/10.1093/rfs/hhq145
