Journal
REVIEW OF FINANCIAL STUDIES
Volume 28, Issue 2, Pages 486-520Publisher
OXFORD UNIV PRESS INC
DOI: 10.1093/rfs/hhu070
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Funding
- The Center for Corporate Governance Research (CCGR) at BI Norwegian Business School
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Blockholders' incentives to intervene in corporate governance are weakened by free-rider problems and high costs of activism. Theory suggests activists may recoup expenses through informed trading of target firms' stock when stocks are liquid. We show that stock liquidity increases the probability of activism but does less so for potentially overvalued firms for which privately informed blockholders may have greater incentives to sell their stake than to intervene. We also document that activists accumulate more stocks in targets when stock is more liquid. We conclude that liquidity helps overcome the free-rider problem and induces activism via preactivism accumulation of target firms' shares.
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