The Law and Economics of Blockholder Disclosure

23 Pages Posted: 14 Jul 2011 Last revised: 5 Jun 2015

See all articles by Lucian A. Bebchuk

Lucian A. Bebchuk

Harvard Law School; European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Robert J. Jackson, Jr.

New York University School of Law

Date Written: July 2011


The Securities and Exchange Commission is currently considering a rulemaking petition that advocates tightening the rules under the Williams Act, which regulates the disclosure of large blocks of stock in public companies. In this Article, we explain why the Commission should not view the proposed tightening as a merely “technical” change needed to meet the objectives of the Williams Act, provide market transparency, or modernize its regulations. The drafters of the Williams Act made a conscious choice not to impose an inflexible 5% cap on pre-disclosure accumulations of shares to avoid deterring investors from accumulating large blocks of shares. We argue that the proposed changes to the SEC’s rules should similarly be examined in the larger context of the optimal balance of power between incumbent directors and these blockholders.

We discuss the beneficial and documented role that outside blockholders play in corporate governance and the adverse effect that any tightening of the Williams Act’s disclosure thresholds can be expected to have on such blockholders. We explain that there is currently no evidence that trading patterns and technologies have changed in ways that would make it desirable to tighten these disclosure thresholds. Furthermore, since the passage of the Williams Act, the rules governing the balance of power between incumbents and outside blockholders have already moved significantly in favor of the former — both in absolute terms and in comparison to other jurisdictions — rather than the latter.

Our analysis provides a framework for the comprehensive examination of the rules governing outside blockholders that the Commission should pursue. In the meantime, we argue, the Commission should not adopt new rules that would tighten the disclosure thresholds that apply to blockholders. Existing research and available empirical evidence provide no basis for concluding that such tightening would protect investors and promote efficiency. Indeed, there is a good basis for concern that such tightening would harm investors and undermine efficiency.

JEL Classification: G30, G34, K22

Suggested Citation

Bebchuk, Lucian A. and Jackson, Jr., Robert J., The Law and Economics of Blockholder Disclosure (July 2011). Harvard Business Law Review, Vol. 2, No. 1, pp. 40-60, Spring 2012, Harvard Law School John M. Olin Center Discussion Paper No. 702, Columbia Law and Economics Research Paper No. 405, Available at SSRN: or

Lucian A. Bebchuk (Contact Author)

Harvard Law School ( email )

Cambridge, MA 02138
United States
617-495-3138 (Phone)
617-812-0554 (Fax)


European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Robert J. Jackson, Jr.

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States


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