Activists, raiders, and directors: Opportunism and the balance of corporate power

Thomas Noe (), Michael J. Rebello and Ramana Sonti

OFRC Working Papers Series from Oxford Financial Research Centre

Abstract: We model corporate governance in a world with competitive securities markets as well as markets for corporate assets. We show that varying the liquidity and opacity of corporate assets, the vitality of the market for corporate control, and the costs of enforcing shareholder rights to cash flows leads to a plethora of institutional designs. When asset liquidity is high, shareholder rights are enforced through the option to liquidate as in a mutual fund. When the opacity of corporate assets is relatively high and asset liquidity is relatively low, firms will eschew reliance on board monitoring and instead rely on shareholder activism. An increase in the cost of ownership concentration, by increasing the inefficiency of shareholder activism, will increase the reliance on board activism and decrease the reliance on CEO compensation. Decreases in the cost of enforcement of shareholder rights and the opacity of corporate assets, and increased raider activity further strengthen the preference for activist boards.

Keywords: governance; asset liquidity; institutional design (search for similar items in EconPapers)
JEL-codes: G20 G34 (search for similar items in EconPapers)
Pages: 48
Date: 2008
New Economics Papers: this item is included in nep-bec and nep-cfn
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Working Paper: Activists, raiders, and directors: Opportunism and the balance of corporate power (2008)
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