Conventional wisdom is that diversification weakens governance by spreading an investor too thinly. We show that, when an investor owns multiple firms ("common ownership"), governance through both voice and exit can strengthen -- even if the firms are in unrelated industries. Under common ownership, an informed investor has flexibility over which assets to retain and which to sell.
She sells low-quality firms first, thereby increasing price informativeness. In a voice model, the investor's incentives to monitor are stronger since "cutting-and-running" is less profitable. In an exit model, the manager's incentives to work are stronger since the price impact of investor selling is greater.
Firms have inefficiently low incentives to innovate when other firms benefit from their inventions and the innovating firm therefore does not capture...
The paper proposes a framework for judicial review of board decisions that have been augmented by an AI. It starts from the assumption that the law treats...
We study the welfare implications of the rise of common ownership in the United States from 1995 to 2021. We build a general equilibrium model with a...