Activists, raiders, and directors: Opportunism and the balance of corporate power
AbstractWe model corporate governance in a world with competitive securities markets as well as markets for corporate assets. We show that varying the liquidity and opacity of corporate assets, the vitality of the market for corporate control, and the costs of enforcing shareholder rights to cash flows leads to a plethora of institutional designs. When asset liquidity is high, shareholder rights are enforced through the option to liquidate as in a mutual fund. When the opacity of corporate assets is relatively high and asset liquidity is relatively low, firms will eschew reliance on board monitoring and instead rely on shareholder activism. An increase in the cost of ownership concentration, by increasing the inefficiency of shareholder activism, will increase the reliance on board activism and decrease the reliance on CEO compensation. Decreases in the cost of enforcement of shareholder rights and the opacity of corporate assets, and increased raider activity further strengthen the preference for activist boards.
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Bibliographic InfoPaper provided by Oxford Financial Research Centre in its series OFRC Working Papers Series with number 2008fe9.
Date of creation: 2008
Date of revision:
governance; asset liquidity; institutional design;
Other versions of this item:
- Thomas H. Noe & Michael J. Rebello & Ramana Sonti, 2008. "Activists, raiders, and directors: Opportunism and the balance of corporate power," OFRC Working Papers Series 2008fe09, Oxford Financial Research Centre.
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-02-16 (All new papers)
- NEP-BEC-2008-02-16 (Business Economics)
- NEP-CFN-2008-02-16 (Corporate Finance)
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