Faculty News | Vox | 01
Do inefficient stock markets drive bad governance?
by Fritz Foley & Robin Greenwood
Why do minority shareholders continue to hold stock despite the risk of expropriation by controlling shareholders? This column provides two decades of evidence from Japan suggesting that many investors do not foresee these conflicts of interest, even when there is plenty of disclosure. Inefficient stock markets allow majority shareholders - often parent companies - to sell overpriced stock only to buy it back at a later date.