Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/312442 
Year of Publication: 
2023
Citation: 
[Journal:] Mathematics and Financial Economics [ISSN:] 1862-9660 [Volume:] 17 [Issue:] 3 [Publisher:] Springer [Place:] Berlin, Heidelberg [Year:] 2023 [Pages:] 537-572
Publisher: 
Springer, Berlin, Heidelberg
Abstract: 
We consider a public firm characterized by a moral hazard problem. A distinguished player is a CEO or activist shareholder who (i) is unrestricted to trade shares and (ii) has discretion to increase the value of this firm by exerting costly effort. von Lilienfeld-Toal and Rünzi (J Finance 69(3):1013–1050, 2014) investigate and confirm the empirical relevance of both these properties. This article shows that a distinguished player cannot be "priced in" correctly. In particular, such a firm is traded at a discount below its equilibrium value in a market equilibrium. Buyers can systematically earn excess returns on their investment. This prediction is indeed consistent with substantial positive abnormal returns for distinguished player firms within the S &P500 and S &P1500 sample reported in von Lilienfeld-Toal and Rünzi (J Finance 69(3):1013–1050, 2014).
Subjects: 
Moral hazard
Discretion
Excess returns
Corporate finance
Asset pricing with large shareholders
JEL: 
G12
G32
C72
D43
D46
Persistent Identifier of the first edition: 
Creative Commons License: 
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Document Type: 
Article
Document Version: 
Published Version

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