Abstract

http://ssrn.com/abstract=2482935
 


 



Governing Multiple Firms


Alex Edmans


London Business School - Institute of Finance and Accounting; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Doron Levit


University of Pennsylvania - Finance Department

Devin Reilly


University of Pennsylvania - Department of Economics

April 20, 2016

European Corporate Governance Institute (ECGI) - Finance Working Paper No. 437/2014

Abstract:     
We study the effect of an investor owning multiple firms on governance through both voice and exit, and by both equityholders and debtholders. Under common ownership, an informed investor has flexibility over which assets to retain and which to sell, and sells low-quality assets first. This increases adverse selection and thus price informativeness. In an exit model, the manager's incentives to work are stronger since the price impact of investor selling is greater. In a voice model, the investor's incentives to monitor are stronger since "cutting-and-running" is less profitable. Our results contrast with conventional wisdom that common ownership always weakens governance by spreading an investor too thinly.

Number of Pages in PDF File: 55

Keywords: Corporate governance, banks, blockholders, monitoring, intervention, exit, trading

JEL Classification: D72, D82, D83, G34


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Date posted: August 20, 2014 ; Last revised: May 3, 2016

Suggested Citation

Edmans, Alex and Levit, Doron and Reilly, Devin, Governing Multiple Firms (April 20, 2016). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 437/2014. Available at SSRN: http://ssrn.com/abstract=2482935

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
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
Doron Levit
University of Pennsylvania - Finance Department ( email )
The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

Devin Reilly
University of Pennsylvania - Department of Economics ( email )
160 McNeil Building
3718 Locust Walk
Philadelphia, PA 19104
United States
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