We investigate how ownership patterns affect the way the firm is monitored, the liquidity of its shares, and its stock price. We show that informed ownership improves governance and induces value-enhancing decisions (less over-investment and fewer but better acquisitions). At the same time, it increases the adverse selection discount required by less informed investors to trade, reducing the firm's liquidity. Both effects are impounded in the stock price. This explains why ownership seems to be unrelated to performance. Informed investors affect prices in opposite directions: monitoring would raise prices, but the lower liquidity induced by their presence would reduce them.

The fastest growing segment of private equity (PE) deals is secondary buyouts (SBOs)—sales from one PE fund to another. Using a comprehensive sample of leveraged buyouts, we investigate whether SBOs are value-maximizing, or reflect opportunistic behavior. To proxy for adverse incentives, we develop buy and sell pressure indexes based on how close PE funds are to the end of their investment period or lifetime, their unused capital, reputation, deal activity, and fundraising frequency. We report that funds under pressure engage more in SBOs. Pressured buyers pay higher multiples, use less leverage, and syndicate less suggesting that their motive is to spend equity. Pressured sellers exit at lower multiples and have shorter holding periods. When pressured counterparties meet, deal multiples depend on differential bargaining power. Moreover, funds that invested under pressure underperform.

This paper investigates how the investment horizon of a firm's institutional shareholders impacts the market for corporate control. We find that target firms with short-term shareholders are more likely to receive an acquisition bid but get lower premiums. This effect is robust and economically significant: Targets whose shareholders hold their stocks for less four months, one standard deviation away from the average holding period of 15 months, exhibit a lower premium by 3%. In addition, we find that bidder firms with short-term shareholders experience significantly worse abnormal returns around the merger announcement, as well as higher long-run underperformance. These findings suggest that firms held by short-term investors have a weaker bargaining position in acquisitions. Weaker monitoring from short-term shareholders could allow managers to proceed with value-reducing acquisitions or to bargain for personal benefits (e.g., job security, empire building) at the expense of shareholder returns.