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We develop a model in which an activist shareholder can discipline management through intervention and through the threat of intervention. A weaker disciplinary role played by the intervention mechanism leads to lower firm value and more frequent ex post interventions. Thus, more frequent ex post interventions are not necessarily a sign of enhanced economic efficiency. In general, we show that the ex ante threat and ex post intervention can act as complements or substitutes. Because we endogenize the activist's choice of toehold, we also show that the effect of liquidity trading on firm value depends on the timing of liquidity trading.

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