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Large shareholders, monitoring, and ownership dynamics: Toward pure managerial firms?

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  • Hilli, Amal
  • Laussel, Didier
  • Van Long, Ngo

Abstract

We study ownership dynamics when the manager and the large shareholder, both risk neutral, simultaneously choose effort and monitoring level respectively to serve their non-congruent interests.We show that there is a wedge between the valuation of shares by atomistic shareholders and the large shareholder's valuation. At the Markov-perfect equilibrium, the large shareholder divests her shares. If the incongruence of their interests is mild, divestment is drastic: all her shares are sold immediately. If their interests diverge sharply, the divestment is gradual in order to prevent a sharp fall in share price. In the limit the firm becomes purely managerial.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 37 (2013)
Issue (Month): 3 ()
Pages: 666-679

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Handle: RePEc:eee:dyncon:v:37:y:2013:i:3:p:666-679

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Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords: Ownership dynamics; Managerial firms;

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References

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  1. Didier Laussel & Maxime de Montmarin & Ngo Van Long, 2004. "Dynamic Duopoly with Congestion Effects," CIRANO Working Papers 2004s-09, CIRANO.
  2. Avanidhar Subrahmanyam & Sheridan Titman, 1999. "The Going-Public Decision and the Development of Financial Markets," Journal of Finance, American Finance Association, vol. 54(3), pages 1045-1082, 06.
  3. Burkart, Mike & Gromb, Denis & Panunzi, Fausto, 1997. "Large Shareholders, Monitoring, and the Value of the Firm," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 693-728, August.
  4. Gul, Faruk & Sonnenschein, Hugo & Wilson, Robert, 1986. "Foundations of dynamic monopoly and the coase conjecture," Journal of Economic Theory, Elsevier, vol. 39(1), pages 155-190, June.
  5. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-77, December.
  6. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 1998. "Corporate Ownership Around the World," NBER Working Papers 6625, National Bureau of Economic Research, Inc.
  7. Dockner,Engelbert J. & Jorgensen,Steffen & Long,Ngo Van & Sorger,Gerhard, 2000. "Differential Games in Economics and Management Science," Cambridge Books, Cambridge University Press, number 9780521637329, November.
  8. Karp, Larry, 1995. "Depreciation Erodes the Coase Conjecture," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt1fs6j5nn, Department of Agricultural & Resource Economics, UC Berkeley.
  9. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
  10. Robert H. Edelstein & Antoni Sureda-Gomila & Branko Urosević & Nicholas Wonder, 2010. "Ownership Dynamics with Multiple Insiders: The Case of REITs," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 38(1), pages 57-90.
  11. Peter M. DeMarzo & Branko Uro, 2006. "Ownership Dynamics and Asset Pricing with a Large Shareholder," Journal of Political Economy, University of Chicago Press, vol. 114(4), pages 774-815, August.
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