We examine whether a large shareholder can alleviate conflicts of interest between managers and shareholders through the credible threat of exit on the basis of private information. In our model the threat of exit often reduces agency costs, but additional private information need not enhance the effectiveness of the mechanism. Moreover, the threat of exit can produce quite different effects depending on whether the agency problem involves desirable or undesirable actions from shareholders' perspective. Our results are consistent with empirical findings on the interaction between managers and minority large shareholders and have further empirical implications.
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Paper provided by Stanford University, Graduate School of Business in its series Research Papers with number
1918r2.
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Tiroley, Jean, 2000.
"Corporate Governance,"
CEI Working Paper Series
2000-1, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
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