Blockholder Short-Term Incentives, Structures, and Governance
60 Pages Posted: 30 Oct 2014 Last revised: 28 Jun 2017
Date Written: June 2017
We model blockholder governance as a sequential process, from less hostile private intervention, to confrontational public intervention, and finally exit. When the blockholder faces short-term incentives, the threat of public intervention and exit loses credibility, and management pays little heed to private demands. With two blockholders with heterogeneous incentive horizons, reduction in public intervention by a blockholder with short-term incentives strengthens public intervention by the other with long-term incentives. This ameliorates the free-rider problem and restores the credibility of the threat of public engagement following failed private intervention. Management becomes more responsive to private demands and governance efficacy is improved.
Keywords: blockholder, exit, voice, short-term incentives, career concerns, investment myopia
JEL Classification: D82, G32, G34
Suggested Citation: Suggested Citation