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Liquidity and Shareholder Activism

Author

Listed:
  • Øyvind Norli
  • Charlotte Ostergaard
  • Ibolya Schindele

Abstract

Blockholders' incentives to intervene in corporate governance are weakened by free-rider problems and high costs of activism. Theory suggests activists may recoup expenses through informed trading of target firms' stock when stocks are liquid. We show that stock liquidity increases the probability of activism but does less so for potentially overvalued firms for which privately informed blockholders may have greater incentives to sell their stake than to intervene. We also document that activists accumulate more stocks in targets when stock is more liquid. We conclude that liquidity helps overcome the free-rider problem and induces activism via preactivism accumulation of target firms' shares.

Suggested Citation

  • Øyvind Norli & Charlotte Ostergaard & Ibolya Schindele, 2015. "Liquidity and Shareholder Activism," The Review of Financial Studies, Society for Financial Studies, vol. 28(2), pages 486-520.
    • Handle: RePEc:oup:rfinst:v:28:y:2015:i:2:p:486-520.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhu070
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