Public Trading and Private Incentives |
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Authors: | Faure-Grimaud Antoine; Gromb Denis |
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Institution: | London School of Economics, FMG, and CEPR London |
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Abstract: | This article studies the link between public trading and theactivity of a firm's large shareholder who can affect firm value.Public trading results in the formation of a stock price thatis informative about the large shareholder's activity. Thisincreases the latter's incentives to engage in value-increasingactivities. Indeed, if he has to liquidate part of his stakebefore the effect of his activity is publicly observed, a moreinformative price rewards him for his activity. Implicationsare derived for the decision to go public, capital structure,and security design. |
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