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01 October 2014  

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See the latest research from the ECGI published in the ECGI Finance Working Paper series
Fri, 05 Sep 2014 12:54 GMT  
ECGI Finance Working Paper 437/2014

by
Alex Edmans, London Business School and ECGI Doron Levit, University of Pennsylvania Devin Reilly, University of Pennsylvania

Submitted by
Alex Edmans
Keywords:
Blockholders, corporate governance, exit, trading, correlation

This paper studies the corporate governance and asset pricing implications of investors owning blocks in multiple firms. Common wisdom is that multi-firm ownership weakens governance because the blockholder is spread too thinly. We show that this need not be the case. In a single-firm benchmark, the blockholder governs through exit, selling her stake if the firm underperforms. With multiple firms, the blockholder may sell even a value-maximizing firm, to disguise her exit from another underperforming firm as being motivated by a portfolio-wide liquidity shock. This reduces the manager’s effort incentives and weakens governance. On the other hand, governance can be stronger, because selling one firm and not the other is a powerful signal of underperformance. Common ownership leads to firms’ stock prices being correlated, even if their fundamentals are uncorrelated. We derive empirical predictions for the direction of correlation and for whether governance is stronger or weaker with multiple firms.


to view details and download this Working Paper from the SSRN website

All ECGI Working Papers in the Law and Finance series are available on the ECGI website at www.ecgi.org/wp
See the latest research from the ECGI published in the ECGI Law Working Paper series
Mon, 25 Aug 2014 13:49 GMT  
ECGI Law Working Paper 262/2014

by
Brian Cheffins, University of Cambridge and ECGI

Submitted by
Brian Cheffins
Keywords:
team production, corporate law theory, managerialism, shareholder primacy, nexus of contracts, shareholder activism, hedge funds

This paper forms part of the proceedings for the 6th Annual Berle Symposium (2014), which focused on Margaret Blair and Lynn Stout’s 1999 Virginia Law Review article A Team Production Theory of Corporate Law. Blair and Stout suggested a few years after the publication of their 1999 article that their team production model was poised to emerge as part of a new corporate law “paradigm” in the sense that Thomas Kuhn deployed the term in his widely cited The Structure of Scientific Revolutions. This paper revisits Blair and Stout’s team production theory by offering a critique of this claim and in so doing draws upon key corporate law theories and trends to offer insights concerning their model.


to view details and download this Working Paper from the SSRN website

All ECGI Working Papers in the Law and Finance series are available on the ECGI website at www.ecgi.org/wp