Governance Under Common Ownership

Abstract

While Section 2.1 compared the most e¢ cient equilibrium under common ownership with the benchmark, Proposition 7 considers all equilibria under common ownership. Proposition 7 (Comparison of equilibria, exit): Suppose L=n v (1 F ()). There is 2 [0; 1) s.t., if , any equilibrium under common ownership is strictly more e¢ cient than any equilibrium under separate ownership. Proof of Proposition 7. Suppose L=n v (1 F ()). From Lemma 3, the unique working threshold in any equilibrium under separate ownership is strictly smaller thanthat is, c so;exit <. Moreover, since c so;exit solves exit (F (c)) = c , lim !1 c so;exit = (1 !). From Lemma 4, a type (i) equilibrium under common ownership exists in which the working threshold is. From the proof of Lemma 4, the only other possible equilibrium is a type (i) equilibrium in which the investor retains bad …rms if = 0. If such an equilibrium exists, the working threshold must satisfy exit (F (c)) = c. Note that, as ! 1, any solution of exit (F (c)) = c converges to. Therefore, if is su¢ ciently close to 1, any equilibrium under common ownership is strictly more e¢ cient than any equilibrium under separate ownership.

Who’s Paying Attention? Measuring Common Ownership and Its Impact on Managerial Incentives

“…all product-market competitors), which may be useful in studying whether common ownership induces anti-competitive behaviors. 4 Finally, our paper contributes to the theoretical literature on common ownership (e.g., see Azar, 2017;Edmans et al, 2018;Hansen and Lott, 1996; Kraus and Rubin, 2010; Lopez and Vives, forthcoming; O'Brien and Salop, 2000; Rubin, 2006). Similar to these papers, we study how common ownership might affect corporate outcomes by shifting managerial incentives.…”

Exit as governance: do blockholders affect corporate innovation in large US firms?

“…More recent studies in corporate governance suggest that blockholders can effectively perform a governance role through their trading behaviour, or 'vote with their feet' (Admati and Pfleiderer, 2009;Edmans, 2009;Edmans and Manso, 2011;Ekholm and Maury, 2014;Edmans et al, 2019). Edmans (2009) show how blockholders can, through threat of exit, motivate management to focus on long-term real investments, such as research and development.…”

Corporate Governance in the Presence of Active and Passive Delegated Investment

“…Second, consider asset M (the market portfolio) and the passive fund manager. Since the system of equations (8), (25), and (20) looks exactly the same as the corresponding system for active fund managers and the L-asset (36)- (38), the solution looks the same as well, which gives the expressions for f P , R M , and P M in the statement of the proposition. Thus, all equilibrium outcomes -f A , f P , R L , R M , P L , P M -are expressed as a function of and the exogenous parameters of the model.…”

“…Plugging these into (33) gives (27). We next characterize the equilibrium as a function of , using (7)-(10); (23), (25); and (20), (27).…”

“…Combining these arguments, the equilibrium (f A ; f P ; x AL ; x P ; P L ; P M ; R L ; R M ) is given by the solution to the following system of equations: market clearing and optimal monitoring decisions (7)-(10); fee negotiation conditions (23) and (25); and investor capital allocation conditions (20) and (21). We characterize this equilibrium in Proposition 1 below.…”