Liquidity and Shareholder Activism
Working paper
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http://hdl.handle.net/11250/196716Utgivelsesdato
2014Metadata
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Sammendrag
Blockholders' incentives to intervene in corporate governance are weakened by free-rider problems and high costs of activism. Theory suggests activists may recoup expenses through informed trading of target firms' stock when stocks are liquid. We show that stock liquidity
increases the probability of activism, but less so for potentially overvalued firms where privately
informed blockholders may have greater incentives to sell their stake than to intervene. We also
document that activists accumulate more stocks in targets the more liquid is the stock. We conclude that liquidity helps overcome the free-rider problem and induces activism via pre-activism
accumulation of target firms' shares.