Work

Exit as Governance: An Empirical Analysis

Year: 2013

Type: article

Abstract: ABSTRACT Recent theory posits a new governance channel available to blockholders: threat of exit. Threat of exit, as opposed to actual exit, is difficult to measure directly. However, a crucial property is that it is weaker when stock liquidity is lower and vice versa. We use natural experiments of financial crises and decimalization as exogenous shocks to stock liquidity. Firms with larger blockholdings experience greater declines (increases) in firm value during the crises (decimalization), particularly if the manager's wealth is sensitive to the stock price and thus to exit threats. Additional tests suggest exit threats are distinct from blockholder intervention.

Source: The Journal of Finance

DOI: 10.1111/jofi.12073

Authors: SREEDHAR T. BHARATH, SUDARSHAN JAYARAMAN, VENKY NAGAR

Institutions: Washington University in St. Louis, University of North Carolina at Chapel Hill, Emory University, University of Michigan, Arizona State University, Stanford University

Language: English

Topic: Corporate Finance and Governance

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Peace, justice, and strong institutions

Open Access status: green

OpenAlex ID: W2316509495

FWCI: 34.02

Cites: 60

Cited by: 386

Related to: 10