We propose that dispersed outside ownership and the resulting managerial discretion come with costs but also with bene ts. Even when tight control by shareholders is ex post ef cient, it constitutes ex ante an expropriation threat that reduces managerial initiative and noncontractible investments. In addition, we show that equity implements state contingent control, a feature usually associated with debt. Finally, we demonstrate that monitoring, and hence ownership concentration, may con ict with performance-based incentive schemes.
For example, REF argue that even if tight control by shareholders is ex post efficient, ex ante it constitutes an expropriation threat which would reduce managerial initiative and non-contractible investments.
Large shareholders, monitoring and the value of the firm
Quarterly Journal of Economics
Economics