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Blockholder Ownership and Corporate Control: The Role of Liquidity

Author

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  • William C. Gerken

    (Gatton College of Business and Economics, University of Kentucky, 550 S. Limestone, Lexington, KY 40526, USA)

Abstract

Employing an instrumental variable approach based on the regulatory change of tick sizes, I examine the link between the liquidity of a firm's equity and activism by large shareholders. I find that liquidity increases the likelihood of block formation. Blockholders of more liquid securities take smaller stakes that do not precommit them to monitor. I find evidence that the threat of exit from a block can discipline managers and that this threat is more effective when liquidity is higher. While liquidity increases exit from existing blocks, I find no evidence that share illiquidity that forces blockholders to actively monitor.

Suggested Citation

  • William C. Gerken, 2014. "Blockholder Ownership and Corporate Control: The Role of Liquidity," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 4(01), pages 1-36.
    • Handle: RePEc:wsi:qjfxxx:v:04:y:2014:i:01:n:s2010139214500037
    DOI: 10.1142/S2010139214500037
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    Citations

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    Cited by:

    1. Aiken, Adam L. & Lee, Choonsik, 2020. "Let's talk sooner rather than later: The strategic communication decisions of activist blockholders," Journal of Corporate Finance, Elsevier, vol. 62(C).
    2. Ljungqvist, Alexander & Back, Kerry E. & Li, Tao, 2013. "Liquidity and Governance," CEPR Discussion Papers 9739, C.E.P.R. Discussion Papers.
    3. Eaton, Gregory W. & Irvine, Paul J. & Liu, Tingting, 2021. "Measuring institutional trading costs and the implications for finance research: The case of tick size reductions," Journal of Financial Economics, Elsevier, vol. 139(3), pages 832-851.
    4. Alex Edmans & Vivian W. Fang & Emanuel Zur, 2013. "The Effect of Liquidity on Governance," The Review of Financial Studies, Society for Financial Studies, vol. 26(6), pages 1443-1482.
    5. Craig W. Holden & Stacey Jacobsen & Avanidhar Subrahmanyam, 2014. "The Empirical Analysis of Liquidity," Foundations and Trends(R) in Finance, now publishers, vol. 8(4), pages 263-365, December.

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