The Effect of Liquidity on Governance

Edmans, Alex; Fang, Vivian W.; Zur, Emanuel

doi:10.2139/ssrn.1905224

Cited by 102 publications

(164 citation statements)

References 63 publications

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“…To better understand these results, we test for the possibility that two or more large shareholders may form a coalition to extract rents from the other, smaller shareholders (Laeven & Levine, 2008). However, we do not find evidence either for the coalition argument or for any significant governance by exit either through the threat of exit (Edmans, Fang, & Zur, 2013) or eventually by selling their stocks (Edmans, 2014).…”

Section: Introductionmentioning

confidence: 72%

“…Among the possible issues, we explore three main areas (2002) illiquidity ratio as "the daily ratio of absolute value of stock returns to dollar volume, averaged over firm i's fiscal year t" (Edmans et al, 2013(Edmans et al, : 1452 associated with the balance of power between management and shareholders: conflict of interest, structure, and compensation. We use the independence of board members and non-dual CEO-chair appointments as critical governance mechanisms of shareholder protection.…”

Section: Governance Mechanismsmentioning

confidence: 99%

“…To address the "governance by exit" mechanisms, we first follow Edmans et al (2013) and use stock liquidity 7 and report the results in Table 10. Through this test we aim to verify the use of exit as a governance mechanism.…”

Section: Additional Analysesmentioning

confidence: 99%

See 2 more Smart Citations

Shareholder Protection: The Role of Multiple Large Shareholders

Barroso

Burkert

Dávila

et al. 2015

Corporate Governance

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Manuscript Type: EmpiricalResearch Question/Issue: This paper addresses the effect of having multiple large shareholders on shareholder protection. More specifically, we examine to what extent this effect depends on whether such large shareholders are beneficiary or fiduciary. Research Findings/Insights: Analyzing longitudinal, hand-collected data covering Swiss listed companies, we find that having several large shareholders leads to overall higher shareholder protection (i.e. adoption of more formal corporate governance mechanisms). This is because large shareholders have an interest in putting more formal governance mechanisms in place when there is another large shareholder that might try to extract rents at the expense of others. Moreover, we find that this effect is driven by the presence of several beneficiary shareholders, i.e. shareholders that invest their own wealth in the company in contrast to dispersed ownership and fiduciary shareholders, i.e. shareholders acting on behalf of others. Theoretical/Academic Implications: Building on recent developments in agency theory, this paper contributes to the corporate governance literature by empirically showing that potential "principal-principal" conflicts among large shareholders lead to overall better shareholder protection in terms of more formal governance mechanisms being adopted. This finding contrasts with situations in which there is only one large shareholder that does not have an interest in strengthening formal corporate governance. Our findings imply, however, that the characteristics of the large shareholders matter: Fiduciary shareholders in the Swiss setting are mostly passive buy-and-hold shareholders and therefore do not engage extensively in improving shareholder protection. Beneficiary shareholders, in contrast, directly intervene in the governance of the firm (i.e. governance by voice), so that in the presence of multiple beneficiary shareholders, more formal governance mechanisms help to monitor not only management but the other large shareholders as well. In addition, more formal governance mechanisms serve as a platform to coordinate their diverging objectives. Practitioner Implications: We demonstrate the influence of a second (or several) large beneficiary shareholder(s), on corporate governance and the benefit to all shareholders. In addition, we propose the strengthening of governance mechanisms as a platform to reconcile conflicting interests among prominent shareholders and contribute to the debate on the allocation of certain voting privileges to long-term shareholders.

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Section: Introductionmentioning

confidence: 72%

Section: Governance Mechanismsmentioning

confidence: 99%

See 1 more Smart Citation

Shareholder Protection: The Role of Multiple Large Shareholders

Barroso

Burkert

Dávila

et al. 2015

Corporate Governance

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“…Consistent with their hypothesis, they find that positive liquidity shocks (e.g., decimalization) enhance blockholder value. In a similar vein, Edmans, Fang, and Zur (2013) find that activist hedge funds are more likely to acquire blocks in liquid stocks as investors exercising governance through trading. Moreover, such listings lead to positive and significant announcement effects on the stocks in question.…”

Section: Background and Literaturementioning

confidence: 84%

Governance through Trading: Institutional Swing Trades and Subsequent Firm Performance

Gallagher¹,

Gardner²,

Swan³

2013

J. Financ. Quant. Anal.

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Using unique daily fund-manager trade data, we examine the role of institutional trading in influencing firm performance. We show that short-horizon informed trading by multiple institutional investors effectively disciplines corporate management. Our focus is on short-term "swing" trades, sequences with three phases (e.g., buy-sell-buy). We find swing trades increase stock price informativeness, are profitable after costs, and improve market efficiency. This increase in stock price informativeness is associated with subsequent firm outperformance. Trades are most beneficial with optimal stock holdings that reflect the information acquisition incentives of investors as well as liquidity costs.

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“…Klein and Zur (2011) concluded that hedge fund activism significantly reduces the wealth of bondholders. Edmans et al (2013) further researched hedge fund activism and indicated that stock liquidity has a positive effect on blockholder governance. Gallagher et al (2013) also demonstrated that institutional investors could influence corporate management and governance through trading a firm's shares.…”

Section: Pressure and Monitoring From Institutional Investorsmentioning

confidence: 99%

Exploring the research fronts and main paths of literature: a case study of shareholder activism research

Vincent

Liu

2016

Scientometrics

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As a relatively young and vibrant discipline, shareholder activism has evolved to become a critical element of corporate governance research. While both finance and law scholars have revealed strong interest on shareholder activism, the heterogeneity in the research concentration of these two fields makes shareholder activism a fragmented discipline. We believe it would be interesting and insightful to conduct a citation-based analysis through the case study encompassing related articles on this topic published in both finance and law journals. We have adopted main path analysis to map out the evolution and research fronts of shareholder activism spanning over 30 years. The results indicated that shareholder activism research has developed in several stages: discussions on theoretical foundation, explorations on the ''shareholder activism versus firm performance'' correlation, the exceptions to the ''oneshare, one-vote'' rule, the emergence of hedge fund activism research, and the recent ''say-onpay'' campaigns. Edge-betweenness based clustering was used to categorize the citation network into coherent groups, with the most popular themes for the period 2003-2013 including ''pressure and monitoring from institutional investors'', ''shareholder activism in CSR and climate change'', ''say-on-pay movement and board responsiveness'', and ''shareholder voting and shareholder rights''. The trends are also discussed herein. This case study should contribute to future studies in both the practical and academic arenas.

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The Effect of Liquidity on Governance

Cited by 102 publications

References 63 publications

Shareholder Protection: The Role of Multiple Large Shareholders

Shareholder Protection: The Role of Multiple Large Shareholders

Governance through Trading: Institutional Swing Trades and Subsequent Firm Performance

Exploring the research fronts and main paths of literature: a case study of shareholder activism research

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