Governance Through Trading and Intervention: A Theory of Multiple Blockholders

  title={Governance Through Trading and Intervention: A Theory of Multiple Blockholders},
  author={Alex Edmans and G. Manso},
  journal={Review of Financial Studies},
  • Alex Edmans, G. Manso
  • Published 2011
  • Economics
  • Review of Financial Studies
  • 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… CONTINUE READING
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