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Public Trading and Private Incentives

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Author Info
Faure-Grimaud, Antoine
Gromb, Denis
Abstract

This paper studies the link between public trading and the activity of a firm's large shareholder who can affect firm value. Public trading results in the formation of a stock price that is informative about the large shareholder's activity. This increases the latter's incentives to engage in value increasing activities. Indeed, if he has to liquidate part of his stake before the effect of his activity is publicly observed, a more informative price rewards him for his activity. Implications of this perspective are derived for the decision to go public and security design.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2505.

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Date of creation: Jul 2000
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Handle: RePEc:cpr:ceprdp:2505

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Related research
Keywords: Blockholder Incentives; Public Trading; Stock Price Information;

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Find related papers by JEL classification:
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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  1. Eric Maskin & Jean Tirole, 2004. "The Politician and the Judge: Accountability in Government," American Economic Review, American Economic Association, vol. 94(4), pages 1034-1054, September. [Downloadable!]
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