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Large shareholders, monitoring, and ownership dynamics: Toward pure managerial firms?

  • Hilli, Amal
  • Laussel, Didier
  • Van Long, Ngo

We study ownership dynamics when the manager and the large shareholder, both risk neutral, simultaneously choose effort and monitoring level respectively to serve their non-congruent interests.We show that there is a wedge between the valuation of shares by atomistic shareholders and the large shareholder's valuation. At the Markov-perfect equilibrium, the large shareholder divests her shares. If the incongruence of their interests is mild, divestment is drastic: all her shares are sold immediately. If their interests diverge sharply, the divestment is gradual in order to prevent a sharp fall in share price. In the limit the firm becomes purely managerial.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 37 (2013)
Issue (Month): 3 ()
Pages: 666-679

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Handle: RePEc:eee:dyncon:v:37:y:2013:i:3:p:666-679
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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