DP2505 Public Trading and Private Incentives
|Author(s):||Antoine Faure-Grimaud, Denis Gromb|
|Publication Date:||July 2000|
|Keyword(s):||Blockholder Incentives, Public Trading, Stock Price Information|
|Programme Areas:||Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=2505|
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.