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Many firms have more than one block holder, but finance theory suggests that one block holder should be sufficient to bestow all benefits on a firm that arise from concentrated ownership. This paper identifies a reason why more block holders may arise endogenously. The authors consider a setting where multiple shareholders have endogenous conflicts of interest depending on the size of their stake. Such conflicts arise because larger shareholders tend to be less well diversified and would therefore prefer the firm to pursue more conservative investment policies.
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