Large Shareholders, Monitoring, and the Value of the Firm
The authors propose that dispersed outside ownership and the resulting managerial discretion come with costs but also with benefits. Even when tight control by shareholders is ex post efficient, it constitutes ex ante an expropriation threat that reduces managerial initiative and noncontractible investments. In addition, the authors show that equity implements state contingent control, a feature usually associated with debt. Finally, they demonstrate that monitoring, and hence ownership concentration, may conflict with performance-based incentive schemes. Copyright 1997, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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Volume (Year): 112 (1997)
Issue (Month): 3 (August)
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