Consider a financial market equilibrium with correlated firms and risk averse investors holding diversified portfolios. When an activist investor has the ability to perform value-enhancing activities in a single firm, and these activities increase with ownership, we show that optimizing behavior by all investors leads to a concentration of shares in the hands of this activist. This concentration arises in the presence of complete information and is a consequence of Walrasian equilibrium mechanisms that include all investors and give no special powers to any of them in the equilibrium process. By yielding more ownership to the activist, all investors alter the risk profiles of their holdings, ending with less balanced portfolios. This rebalancing effect is accompanied by an increase in the price of the security that the activist can affect, as well as in the total value of the market. When the activist can affect more than one firm, rebalancing of all portfolios again occurs. Although the activist may not acquire increased concentration in all the firms she might affect, prices change for all those firms, and we give conditions under which at least one price must increase. We find that equilibrium results in a sharing of the costs and benefits of activism among all market participants, mitigating the free-rider problem.
Download Info
To our knowledge, this item is not available for
download. To find whether it is available, there are three
options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page
whether it is in fact available.
3. Perform a search for a similarly titled item that would be
available.
Length: 37 pages Date of creation: 2000 Date of revision: Handle: RePEc:fth:nystfi:ec-00-01
Contact details of provider: Postal: U.S.A.; New York University, Leonard N. Stern School of Business, Department of Economics . 44 West 4th Street. New York, New York 10012-1126 Web page: http://w4.stern.nyu.edu/finance/ More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: (Thomas Krichel).
Find related papers by JEL classification: G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data) G30 - Financial Economics - - Corporate Finance and Governance - - - General
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.: