The Threat of Intervention

58 Pages Posted: 21 Apr 2018 Last revised: 9 Oct 2022

See all articles by Vyacheslav Fos

Vyacheslav Fos

Boston College - Department of Finance; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Charles M. Kahn

University of Illinois, Urbana-Champaign; Bank of Canada; Federal Reserve Bank of Saint Louis

Multiple version iconThere are 2 versions of this paper

Date Written: March 26, 2019


We develop a model in which an activist shareholder can discipline management through intervention and through the threat of intervention. A weaker disciplinary role played by the intervention mechanism leads to lower firm value and more frequent ex post interventions. Thus, more frequent ex post interventions are not necessarily a sign of enhanced economic efficiency. In general, we show that the ex ante threat and ex post intervention can act as complements or substitutes. Because we endogenize the activist's choice of toehold, we also show that the effect of liquidity trading on firm value depends on the timing of liquidity trading.

Keywords: Corporate governance, agency costs, shareholder activism, disciplinary effects, stock liquidity

JEL Classification: G34

Suggested Citation

Fos, Vyacheslav and Kahn, Charles M., The Threat of Intervention (March 26, 2019). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 602/2019, Available at SSRN: or

Vyacheslav Fos (Contact Author)

Boston College - Department of Finance ( email )

Carroll School of Management
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European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

Charles M. Kahn

University of Illinois, Urbana-Champaign ( email )

Department of Finance
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Champaign, IL 61820
United States


Bank of Canada

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Federal Reserve Bank of Saint Louis

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