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

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

Abstract

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.

Suggested Citation

  • Hilli, Amal & Laussel, Didier & Van Long, Ngo, 2013. "Large shareholders, monitoring, and ownership dynamics: Toward pure managerial firms?," Journal of Economic Dynamics and Control, Elsevier, vol. 37(3), pages 666-679.
  • Handle: RePEc:eee:dyncon:v:37:y:2013:i:3:p:666-679
    DOI: 10.1016/j.jedc.2012.10.006
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    References listed on IDEAS

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    Cited by:

    1. Laussel, Didier & Van Long, Ngo & Resende, Joana, 2015. "Network effects, aftermarkets and the Coase conjecture: A dynamic Markovian approach," International Journal of Industrial Organization, Elsevier, vol. 41(C), pages 84-96.
    2. Ngo Long, 2015. "Dynamic Games Between Firms and Infinitely Lived Consumers: A Review of the Literature," Dynamic Games and Applications, Springer, vol. 5(4), pages 467-492, December.

    More about this item

    Keywords

    Ownership dynamics; Managerial firms;

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance

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