Ownership Structure, Speculation, and Shareholder Intervention

Finance Department Working Paper No. 220

Posted: 15 Jan 1997

See all articles by Charles M. Kahn

Charles M. Kahn

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

Andrew Winton

University of Minnesota - Twin Cities - Carlson School of Management; Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF)

Date Written: October 1996

Abstract

An institution that gathers information about a firm whose shares it holds can use this information for two purposes: speculation, and costly intervention aimed at improving the firm's performance. Its incentive to intervene has two components: the direct impact on its existing position, and the trading impact from buying more shares in advance of intervening rather than not intervening and selling shares. The trading impact can be positive or negative, depending on whether intervention enhances the precision of the institution's information relative to that of uninformed traders. Thus, the ability to speculate can increase or reduce institutional intervention. Key factors that affect intervention include the investors' cost of gathering speculative information, the effectiveness of intervention, and the market's beliefs about the firm's future performance. The paper also discusses the usefulness of "short-swing" provisions and restricted shares in aligning the institution's incentives with shareholder value, and implications for ownership structure across different firms.

JEL Classification: G32, G20

Suggested Citation

Kahn, Charles M. and Winton, Andrew, Ownership Structure, Speculation, and Shareholder Intervention (October 1996). Finance Department Working Paper No. 220. Available at SSRN: https://ssrn.com/abstract=8040

Charles M. Kahn

University of Illinois, Urbana-Champaign ( email )

Department of Finance
340 Wohlers Hall
Champaign, IL 61820
United States

HOME PAGE: http://kahnfrance.com/cmk/

Feseral Reserve Bank of Saint Louis

411 Locust St
Saint Louis, MO 63011
United States

Bank of Canada

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

Andrew Winton (Contact Author)

University of Minnesota - Twin Cities - Carlson School of Management ( email )

321 19th Avenue South
Department of Finance
Minneapolis, MN 55455
United States
612-624-0589 (Phone)
612-626-1335 (Fax)

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

Register to save articles to
your library

Register

Paper statistics

Abstract Views
1,253
PlumX Metrics
!

Under construction: SSRN citations while be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information