Laurie Simon Hodrick

Shareholder Heterogeneity: Evidence and Implications

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Abstract:
The nature of supply curves in corporate equity are examined. Until recently, there has been little direct empirical assessment of their elasticity. At issue is whether or not the supposition of shareholder homogeneity of valuations represents a good approximation to actual markets. In Bagwell (1990), supply curves documented in Dutch auction repurchases have a distinct upward slope. Shleifer (1990) also provides evidence of an upward-sloping supply curve. In light of the evidence suggestive of less than perfect elasticity for stock, the traditional interpretations of the share price reaction to specific corporate events are reexamined. For example, Mikkelson and Partch (1985) find no relationship between the price reaction and elasticity determinants they consider. Despite the importance of common shareholder valuations to finance theory and practice, there is direct evidence of significant shareholders disagreement in Dutch auction repurchases.

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