Governance Under Common Ownership

Governance Under Common Ownership

Alex Edmans, Doron Levit, Devin Reilly

Series number :

Serial Number: 

Date posted :

September 01 2014

Last revised :

August 30 2018
SSRN Share


  • Corporate governance • 
  • Banks • 
  • Blockholders • 
  • monitoring • 
  • intervention • 
  • exit • 
  • trading • 
  • common ownership.

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.

Published in

Published in: 
Publication Title: 
The Review of Financial Studies (forthcoming)


Real name:
Devin Reilly