Blockholder Ownership and Corporate Control: The Role of Liquidity

47 Pages Posted: 9 Jul 2014

Date Written: July 7, 2014


Employing an instrumental variable approach based on the regulatory change of tick sizes, I examine the link between the liquidity of a firm's equity and activism by large shareholders. I find that liquidity increases the likelihood of block formation. Blockholders of more liquid securities take smaller stakes that do not precommit them to monitor. I find evidence that the threat of exit from a block can discipline managers and that this threat is more effective when liquidity is higher. While liquidity increases exit from existing blocks, I find no evidence that share illiquidity forces blockholders to actively monitor.

Keywords: Blockholder, Liquidity , Corporate Governance, Activism

JEL Classification: G34

Suggested Citation

Gerken, William Christopher, Blockholder Ownership and Corporate Control: The Role of Liquidity (July 7, 2014). Available at SSRN: or

William Christopher Gerken (Contact Author)

University of Kentucky - Finance ( email )

College of Business & Economics
Lexington, KY 40506-0034
United States


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