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Insight

Voting with your feet
Researches study effect of increased liquidity on governance.

Team Outlook Business

Is an enlightened customer or shareholder always good for a company? Not really, say Kerry Back, Tao Li and Alexander Ljungqvist. The researchers say that investors holding large blocks of stock may cash in and walk out if they feel that the firm is not doing enough to increase value or capitalise on greater liquidity. Such shareholder activism can get in the way of corporate governance, leading the researchers to conclude that increased liquidity seems to have a counterproductive effect on governance.

Title: Liquidity and Governance

Source: Social Science Research Networ

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