Corporation Law
Examine the impact of share price and blockhoder (e.g. hedge funds, pension funds, and
institutional investor) activity on the shareholder-board-manager balance of power relationship in
Listed companies. In this context (1) how should the focus on share price be addressed, and (2)
should investment funds be regulated, and if so how and why?
Corporation law
CORPORATION LAW
Introduction
This paper focuses on the impact of blockholder and share prices on the shareholder
board managers’ powers in different firms. By definition, blocklolder refers to those
individuals who own a large amount of shares in the company. These owners can influence
the company using the voting rights which are privilege with what they hold. Strong
incentives that they possess can be used to acquire information considered to be costly during
losses. The losses may result from poor firm quality or long term investments. If it is the
latter, the blockholders retain their stake during these difficult moments. This share price will
enable managers to exploit growth opportunities that will reduce short term earnings
(Holderness 2003).
Managers have enough stakes in their companies. However, large shareholders also
called blockholders usually have a critical governance role in a company since their
adjustable stake carry high incentives to undergo the cost of monitoring managers.
Blockholders can apply governance through two primary mechanisms. The first is
immediate intervention inside a firm, also called voice. It incorporates proposing a vital
change through either an open shareholder proposition or a private letter to administration, or
voting against directors. While the vast majority of the early research on blockholder
governance has concentrated on voice, recent writing has examined a second governance
instrument exchanging a company’s shares, overall known as exit, after the “Wall Street
Rule,” or taking the “Wall Street Walk.” If the director destroys value, blockholders can offer
their shares, pushing down the stock cost and therefore harming the manager. The risk of exit
impels the administrator to expand esteem and therefore, forcing to maximize value.
Blockholders might as well intensify more than agency problems. To begin with,
regardless of the possibility that blockholders’ activities maximize firm value ex post, their
CORPORATION LAW
presence may decrease value ex stake: the risk of intervention may disintegrate administrative
activity, and their negligible presence may lower liquidity. Second, as opposed to amplifying
firm esteem, they may separate private advantages. While blockholders may ease
irreconcilable circumstances in the middle of supervisors and speculators, there may be
irreconcilable circumstances between the extensive shareholder and little shareholders. Case
in point, blockholders may force the firm to purchase items from an alternate organization
that they possess inflated costs (Edmans 2009).
Controlling the share price
Stock price is an indicator of the wellbeing of an organization. Expanded benefits, for
instance, will drive the stock price up. Likewise, unreasonable debt will drive it down. The
stock price has a significant impact on the organization in general. For instance, a declining
share price will make it difficult to secure credit, draw in further financial investors, assemble
associations, and so forth. Likewise, representatives are frequently holding alternatives or in a
stock-purchase arrangement. Thus, a declining offer price can seriously dampen spirit.
In a compelling case, if offer prices fall too far, the organization can be constrained to
switch the shares, and, in the end, take the organization private. Investment funds should be
regulated so that the scandals which occur due to systemic failure are evaded. The rule
making in the in-regulation process should involve the combination of a time disclosure as
well as enhance responsibilities of key actors in the firm such as managers or the directors.
Thus, blockholders and share price have a great influence in the management of a company.
References
Holderness, Clifford G. A survey of blockholders and corporate control. (Economic policy
CORPORATION LAW
review 9, no. 1 2003).
Edmans, Alex. Blockholder trading, market efficiency, and managerial myopia. (The Journal
of Finance 64, no. 6 2009).
