Public Trading and Private Incentives

Denis Gromb and Antoine Faure-Grimaud

No 2505, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper studies the link between public trading and the activity of a firm's large shareholder who can affect firm value. Public trading results in the formation of a stock price that is informative about the large shareholder's activity. This increases the latter's incentives to engage in value increasing activities. Indeed, if he has to liquidate part of his stake before the effect of his activity is publicly observed, a more informative price rewards him for his activity. Implications of this perspective are derived for the decision to go public and security design.

Keywords: Public trading; Stock price information; Blockholder incentives (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Date: 2000-07
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Citations: View citations in EconPapers (2)

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Working Paper: Public Trading and Private Incentives (2000)
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