Blockholder Trading, Market Efficiency, and Managerial Myopia

  title={Blockholder Trading, Market Efficiency, and Managerial Myopia},
  author={Alex Edmans},
  journal={Journal of Finance},
  • Alex Edmans
  • Published 2009
  • Economics
  • Journal of Finance
  • This paper analyzes how blockholders can exert governance even if they cannot intervene in a firm's operations. Blockholders have strong incentives to monitor the firm's fundamental value because they can sell their stakes upon negative information. By trading on private information (following the “Wall Street Rule”), they cause prices to reflect fundamental value rather than current earnings. This in turn encourages managers to invest for long‐run growth rather than short‐term profits… CONTINUE READING
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