1
Q
Grossman and Hart 1980
A
- Gist: market for corporate control limited by passive shareholders free-riding
- commonly thought that a widely held corporation that is not being run in the interest of its shareholders will be vulnerable to a takeover bid.
- this is false, since shareholders can free ride on the raider’s improvement of the corporation, thereby seriously limiting the raider’s profit.
2
Q
Sheifer and Vishny 1986
A
- Gist: Free-rider problem similar to Grossman and Hart (1993). Costly monitoring of managers that benefits ALL shareholders limits this activity by active shareholders.
- explore a model in which the presence of a large minority shareholder provides a partial solution to this free-rider problem.
- model sheds light on the following questions: Under what circumstances will we observe a tender offer as opposed to a proxy fight or an internal management shake-up?
- How strong are the forces pushing toward increasing concentration of ownership of a diffusely held firm?
- Why do corporate and personal investors commonly hold stock in the same firm, despite their disparate tax preferences?
3
Q
Hirshleifer 1995
A
- survey on the free-rider problem.
- Models depend on tendering strategies coordinated so that each shareholder has a substantial probability of being pivotal.
- degree of coordination may not be possible when noise is added in the form of a fraction of shareholders influenced by costs and benefits not observed by others
4
Q
Gantchev 2012
A
- models [hedge fund] activism as a sequential decision process
- consisting of demand negotiations, board representation, and proxy contest
- campaign ending in a proxy fight has avg costs of $10.71 million.
- estimated monitoring costs reduce activist returns by more than two-thirds.
- mean net activist return is close to zero but the top quartile of activists earns higher returns on their activist holdings than on their non-activist investments.
Corporate Finance
flashcards
Decks in class (10)
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