Ownership Dynamics and Asset Pricing with a Large Shareholder
We analyze the optimal trading and ownership policy of a large shareholder who must trade off diversification and monitoring incentives. Without commitment, the problem is similar to durable goods monopoly: the share price today depends on expected future trades. We show that the large shareholder ultimately trades to the competitive price-taking allocation, even though it entails inefficient monitoring. With continuous trading, the large shareholder trades immediately to this allocation if moral hazard is weak enough that her private valuation of a share is decreasing in her stake. Otherwise, the large shareholder adjusts her stake gradually. We consider implications for asset pricing, IPO underpricing, and lockup provisions.
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Volume (Year): 114 (2006)
Issue (Month): 4 (August)
Pages: 774-815
| Handle: | RePEc:ucp:jpolec:v:114:y:2006:i:4:p:774-815 |
| Contact details of provider: | Web page: http://www.journals.uchicago.edu/JPE/
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- Mike Burkart & Denis Gromb & Fausto Panunzi, 1998.
"Why Higher Takeover Premia Protect Minority Shareholders,"
Journal of Political Economy,
University of Chicago Press, vol. 106(1), pages 172-204, February.
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- repec:hrv:faseco:30747162 is not listed on IDEAS Full references (including those not matched with items on IDEAS)
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