Working Paper: CEPR ID: DP13654
Authors: Vyacheslav Fos; Charles Kahn
Abstract: 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.
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JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| weaker disciplinary role of the intervention mechanism (E61) | lower firm value (G32) |
| increased intervention frequency (C41) | lower firm value (G32) |
| size of the toehold (F12) | effectiveness of the threat (D74) |
| size of the toehold (F12) | effectiveness of the actual intervention (C90) |
| liquidity trading (G15) | influence on firm value (G32) |
| timing of liquidity trades (G14) | activist's ability to hide information (D82) |
| activist's ability to hide information (D82) | impact on managerial behavior (D22) |
| increased intervention (I24) | decreased firm value (G32) |