Abstract

http://ssrn.com/abstract=1905224
 
 

References (64)



 
 

Citations (12)



 


 



The Effect of Liquidity on Governance


Alex Edmans


London Business School - Institute of Finance and Accounting; University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Vivian W. Fang


University of Minnesota - Twin Cities - Department of Accounting

Emanuel Zur


University of Maryland - Robert H. Smith School of Business

October 19, 2012

Review of Financial Studies, June 2013, 26(6), 1443-1482.
ECGI - Finance Working Paper No. 319/2011

Abstract:     
This paper studies the effect of stock liquidity on blockholder governance. Conditional upon acquiring a stake, liquidity reduces the likelihood that a blockholder governs through voice (intervention) – as shown by the greater propensity to file Schedule 13Gs (passive investment) than 13Ds (active investment). The lower frequency of activism does not reflect the abandonment of governance, but governance through the alternative channel of exit (trading): a 13G filing leads to positive announcement returns and improvements in operating performance, especially in liquid firms. Moreover, liquidity increases the likelihood of block formation to begin with. Taking this into account, liquidity leads to an overall increase in both voice and exit, and is thus beneficial for governance. We use decimalization as an exogenous shock to liquidity to identify causal effects.

Number of Pages in PDF File: 60

Keywords: Stock Liquidity, Corporate Governance, Hedge Fund Activism, Blockholders, Exit, Voice

JEL Classification: G12, G19, G23, G34, G38

Accepted Paper Series





Download This Paper

Date posted: August 4, 2011 ; Last revised: December 5, 2013

Suggested Citation

Edmans, Alex and Fang, Vivian W. and Zur, Emanuel, The Effect of Liquidity on Governance (October 19, 2012). Review of Financial Studies, June 2013, 26(6), 1443-1482. ; ECGI - Finance Working Paper No. 319/2011. Available at SSRN: http://ssrn.com/abstract=1905224 or http://dx.doi.org/10.2139/ssrn.1905224

Contact Information

Alex Edmans (Contact Author)
London Business School - Institute of Finance and Accounting ( email )
Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
University of Pennsylvania - The Wharton School ( email )
3733 Spruce Street
Philadelphia, PA 19104-6374
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Vivian W. Fang
University of Minnesota - Twin Cities - Department of Accounting ( email )
321 19th Avenue South
Room 3-109
Minneapolis, MN 55455
United States
HOME PAGE: http://www.vivianfang.org
Emanuel Zur
University of Maryland - Robert H. Smith School of Business ( email )
College Park, MD 20742-1815
United States
Feedback to SSRN


Paper statistics
Abstract Views: 6,095
Downloads: 1,126
Download Rank: 9,328
References:  64
Citations:  12

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo3 in 0.656 seconds