 Agency problem and ownership structure: Outside blockholder as a signalSergey Stepanov () and Anton Suvorov Journal of Economic Behavior & Organization, 2017, vol. 133, issue C, 87-107 Abstract: We model the decision of an entrepreneur, seeking outside financing, on whether to sell a large equity share to a blockholder. A conventional theoretical rationale for the presence of an outside blockholder is mitigation of the agency problem via monitoring. Our model provides a novel insight: outside blockholders may be attracted by entrepreneurs with low, rather than high, agency problems in order to signal their low propensity to extract private benefits. Our result yields a new interpretation of an often documented positive relationship between outside ownership concentration in a firm and its market valuation: it may be driven by “sorting” rather than by the direct effect of monitoring. We show that the positive correlation may arise even if the blockholder derives private benefits and has no positive impact on the value of small shares. Our analysis also helps to explain why the market reacts more favorably to private placements of equity as opposed to public issues. Keywords: Agency problem; Blockholders; Monitoring; Ownership structure; Asymmetric information (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:133:y:2017:i:c:p:87-107 DOI: 10.1016/j.jebo.2016.10.024 Access Statistics for this article Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D. More articles in Journal of Economic Behavior & Organization from Elsevier |
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