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Public Trading and Private Incentives

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  • Antoine Faure-Grimaud

Abstract

This article studies the link between public trading and the activity of a firm's large shareholder who can affect firm value. Public trading results in the formation of a stock price that is informative about the large shareholder's activity. This increases the latter's incentives to engage in value-increasing activities. Indeed, if he has to liquidate part of his stake before the effect of his activity is publicly observed, a more informative price rewards him for his activity. Implications are derived for the decision to go public, capital structure, and security design. Copyright 2004, Oxford University Press.

Suggested Citation

  • Antoine Faure-Grimaud, 2004. "Public Trading and Private Incentives," Review of Financial Studies, Society for Financial Studies, vol. 17(4), pages 985-1014.
  • Handle: RePEc:oup:rfinst:v:17:y:2004:i:4:p:985-1014
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    File URL: http://hdl.handle.net/10.1093/rfs/hhh002
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