Dynamic Blockholder Incentives: Liquidity and Reputation

94 Pages Posted: 11 Nov 2018 Last revised: 25 Oct 2019

See all articles by Ivan Marinovic

Ivan Marinovic

Graduate School of Business, Stanford University

Felipe Varas

Duke University - Fuqua School of Business - Finance Department

Date Written: October 19, 2018

Abstract

We study strategic trading by a blockholder who can intervene over time to influence the firm’s cash flows. We consider the impact of asymmetric information on the incentives of the blockholder to trade, and study when information asymmetry increases blockholder ownership and leads to greater firm value. Asymmetric information reduces the speed of blockholder trading if private information is sufficiently persistent, but can increase it otherwise. We study how the presence of liquidity shocks, leading to a noisy equilibrium, creates Rachet effects whereby the blockholder’s (endogenous) trading plans induce him to distort the firm cash flows to manipulate the stock price.

Keywords: Strategic Trading, Blockholder, Managerial Ownership, Reputation, Activism

JEL Classification: D72, D82, D83, G20

Suggested Citation

Marinovic, Ivan and Varas, Felipe, Dynamic Blockholder Incentives: Liquidity and Reputation (October 19, 2018). Stanford University Graduate School of Business Research Paper No. 19-2. Available at SSRN: https://ssrn.com/abstract=3270037 or http://dx.doi.org/10.2139/ssrn.3270037

Ivan Marinovic (Contact Author)

Graduate School of Business, Stanford University ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Felipe Varas

Duke University - Fuqua School of Business - Finance Department ( email )

Durham, NC 27708-0120
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
61
Abstract Views
487
rank
378,472
PlumX Metrics