Large shareholders, monitoring, and the value of the firm

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Publication Details

Output type: Journal article

Author list: Burkart M, Gromb D, Panunzi F

Publisher: Oxford University Press

Publication year: 1997

Journal: The Quarterly Journal of Economics (0033-5533)

Volume number: 112

Issue number: 3

Start page: 693

End page: 728

Number of pages: 36

ISSN: 0033-5533

eISSN: 1531-4650

Languages: English-Great Britain (EN-GB)

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Open access status: closed

Abstract

We propose that dispersed outside ownership and the resulting managerial discretion come with costs but also with benefits. Even when tight control by shareholders is ex post efficient, it constitutes ex ante an expropriation threat that reduces managerial initiative and noncontractible investments. In addition, we show that equity implements state contingent control, a feature usually associated with debt. Finally, we demonstrate that monitoring, and hence ownership concentration, may conflict with performance-based incentive schemes.

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