We propose a model in which an entrepreneur, seeking outside financing, sells a large equity share to an outside blockholder in order to signal his low propensity to extract private benefits. A conventional theoretical rationale for the presence of an outside blockholder is mitigation of the...

This paper analyzes how outsiders, such as bidders or activist investors, overcome the lack of coordination and information among dispersed shareholders. We identify the two basic means to achieve this goal. First, the outsider must relinquish private benefits in a manner that is informative...