Action-Based Contracts between Firms and Shareholders

Posted: 3 Oct 2017 Last revised: 2 May 2019

See all articles by Jordan Schoenfeld

Jordan Schoenfeld

Georgetown University, McDonough School of Business

Date Written: April 29, 2019


Theory has long predicted the existence of contracts between firms and sophisticated shareholders that specify explicit constraints on managers' actions (action-based contracts). This study is one of the first to show that these contracts are empirically pervasive as well. Using a comprehensive sample of about 26,000 block investments from 1996 to 2018, I find that action-based contracts are increasingly prevalent and can specify covenants that directly constrain such actions as financing, trading, directorships, dividends, joint ventures, corporate investment, financial reporting, and selective disclosure. I also find that the contract covenants are commonly stated in terms of accounting numbers, and that the prevalence of these contracts is significantly associated with measures of increased manager-shareholder agency conflicts.

Keywords: Agency Theory; Corporate Governance; Shareholder Contracts

JEL Classification: D21, G30, G32, G34, K22, L22

Suggested Citation

Schoenfeld, Jordan, Action-Based Contracts between Firms and Shareholders (April 29, 2019). Available at SSRN: or

Jordan Schoenfeld (Contact Author)

Georgetown University, McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

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