Multiple Shareholder Control as a Signaling Mechanism

Vahe Lskavyan ()

Economics Bulletin, 2006, vol. 7, issue 3, 1-10

Abstract: We show that multiple shareholder control (MSC) can arise as a signaling mechanism. A controlling shareholder can sell her shares because of personal liquidity needs or because of bad fundamentals of the asset she owns. Because the market is unable to distinguish the motivation for sale and the seller's liquidity risk type, ex ante returns of investors with high liquidity risk will be adversely affected. With MSC, shocks to the fundamentals of the asset can be more easily disentangled from the liquidity shocks of the individual owners. As a result, ex ante returns will come closer to true returns and increase incentives of investors with high liquidity risk to acquire controlling shares.

JEL-codes: G0 G3 (search for similar items in EconPapers)
Date: 2006-03-09
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