Activists, raiders, and directors: Opportunism and the balance of corporate power
We model corporate governance in a world with competitive securities markets as well as markets for corporate assets.� We show that varying the liquidity and opacity of corporate assets, the vitality of the market for corporate control, and the costs of enforcing shareholder rights to cash flows leads to a plethora of institutional designs.� When asset liquidity is high, shareholder rights are enforced through the option to liquidate as in a mutual fund.� When the opacity of corporate assets is relatively high and asset liquidity is relatively low, firms will eschew reliance on board monitoring and instead rely on shareholder activism.� An increase in the cost of ownership concentration, by increasing the inefficiency of shareholder activism, will increase the reliance on board activism and decrease the reliance on CEO compensation.� Decreases in the cost of enforcement of shareholder rights and the opacity of corporate assets, and increased raider activity further strengthen the preference for activist boards.
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|Date of creation:||01 Jan 2008|
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