Blockholder Ownership and Corporate Control: The Role of Liquidity

William Gerken

Quarterly Journal of Finance (QJF), 2014, vol. 04, issue 01, 1-36

Abstract: Employing an instrumental variable approach based on the regulatory change of tick sizes, I examine the link between the liquidity of a firm's equity and activism by large shareholders. I find that liquidity increases the likelihood of block formation. Blockholders of more liquid securities take smaller stakes that do not precommit them to monitor. I find evidence that the threat of exit from a block can discipline managers and that this threat is more effective when liquidity is higher. While liquidity increases exit from existing blocks, I find no evidence that share illiquidity that forces blockholders to actively monitor.

Keywords: Blockholder; liquidity; corporate governance; activism (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (7)

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DOI: 10.1142/S2010139214500037

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