Large shareholder activism, risk sharing, and financial market equilibrium
AbstractThe authors develop a model in which a large investor has access to a costly monitoring technology affecting securities' expected payoffs. Allocations of shares are determined through trading among risk-averse investors. Despite the free-rider problem associated with monitoring, risk-sharing considerations lead to equilibria in which monitoring takes place. Under certain conditions, the equilibrium allocation is Pareto efficient and all agents hold the market portfolio of risky assets independent of the specific monitoring technology. Otherwise, distortions in risk sharing may occur and monitoring activities that reduce the expected payoff on the market portfolio may be undertaken. Copyright 1994 by University of Chicago Press.
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Bibliographic InfoPaper provided by EconWPA in its series Public Economics with number 0502011.
Date of creation: 19 Feb 2005
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Other versions of this item:
- Admati, Anat R & Pfleiderer, Paul & Zechner, Josef, 1994. "Large Shareholder Activism, Risk Sharing, and Financial Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1097-1130, December.
- D6 - Microeconomics - - Welfare Economics
- D7 - Microeconomics - - Analysis of Collective Decision-Making
- H - Public Economics
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