Tirol J36-43 - Tirol J , Theory of corporate Finance...

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Tirol J , Theory of corporate Finance chapter 1, Coprorate Governance p 36-43 Investor activism Active monitors intervene in such matters as the firms strategic decisions, investments, and asset sales, managerial compensation, design of takeover defenses, and board size and compensation Investor activism comes in many guises Active monitoring requires control Monitoring per se does not alter corporate policy In order to implement new ideas, or to oppose bad policies of managers the active monitor must have control Control can come in two forms: o Formal o Real Formal control is enjoyed by family owners with a majority of voting shares, by headquarters over divisions, in a conglomerate, or by a venture capitalist with explicit rights over a start up company o Formal control thus enables a large owner to directly and unencumbered implement the changes he deems necessary Real control is enjoyed by a minority owner who persuades other owners, or at least a fraction of them sufficient to create a dissenting majority, of the need for intervention o The extend to which a minority owner is able to convince other owners to move against management depends on two factors : Ease of communication and of coalition- building with other investors Congruence of owners The degree of congruence is determined by the active monitors reputation , by the absence of conflict of interest
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Tirol J36-43 - Tirol J , Theory of corporate Finance...

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