“Looking after something is an unpleasant business. Therefore it makes sense that we look after things when it is beneficial for us, but we avoid looking after things when it is not. Sometimes there are situations where looking after things and benefit do not meet, which easily leads to so-called moral hazard. A carton of milk on the kitchen table at the office and scratches on a rental car are everyday examples of a moral hazard. At home, the milk carton would have found its way back into the fridge fresh, and your own car into the parking space with no damages.
In a firm, the situation is similar. Each shareholder must look after the firm’s operations – or perhaps ‘somebody’ takes care of it? Traditionally, financial research has documented that the shareholder base’s concentration has a positive effect on the firm’s success. The underlying explanation is that significant shareholders enhance governance through their (voting) rights. An underlying assumption here is also that significant shareholders are committed to looking after the firm. Somewhat surprisingly, there is weak scientific evidence to back up this assumption. So, is ‘someone’ looking after things?”