Blockholder Short-Term Incentives, Structures, and Governance

60 Pages Posted: 30 Oct 2014 Last revised: 28 Jun 2017

See all articles by Fenghua Song

Fenghua Song

Pennsylvania State University - Smeal College of Business

Date Written: June 2017

Abstract

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

Song, Fenghua, Blockholder Short-Term Incentives, Structures, and Governance (June 2017). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 513/2017. Available at SSRN: https://ssrn.com/abstract=2516643 or http://dx.doi.org/10.2139/ssrn.2516643

Fenghua Song (Contact Author)

Pennsylvania State University - Smeal College of Business ( email )

University Park, PA 16802
United States
814.863.4905 (Phone)

HOME PAGE: http://sites.google.com/site/fenghua8song/

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