Shiqi Chen

by Dr Shiqi Chen, Research Associate, Cambridge Centre for Finance and Cambridge Endowment for Research in Finance One standard assumption of the existing corporate finance literature is firms' policies are set to maximise total shareholders' value, irrespective of individual stockholders' personal preferences. Shareholders who disagree with the firm's policies can sell off their holdings and invest in alternative investment opportunities. However, this assumption is only valid for public traded firms with well-diversified investors, which is not the norm when we look at the existing business entities in the economy. Indeed, many business entities are not traded on the public market and are governed by a small group of investors with heterogenous preferences, beliefs, investment horizons etc. For example, many small family firms are often owned and run by a few family members whose preferences are different, and whose livelihoods are tied to the firm's income. Another example is mutual fund management teams, which consist of several managers with different preferences, career stages, risk tolerance etc. These differences are reflected in their choices of assets and therefore determine their compensation. Similarly, VC syndicates often involve partners with different investment preferences and horizons. Under such circumstances, what entities involving heterogeneous stockholders should…

Unlike what is often assumed in the standard corporate finance literature that firms are often governed by a single representative agent on behalf of the principal, in reality, many corporate decisions are indeed determined by a group of agents or investors, who are heterogeneous in many dimensions.

At the beginning of the COVID-19 (coronavirus) crisis, a massive drop in global dividends occurred as firms struggled to preserve cash in this unprecedented world health crisis. While Royal Dutch Shell and British Petroleum cut their dividend for the first time since the Second World War and the 2010 Deepwater Horizon Disaster, respectively, Exxon continued its thirty-seventh increase in the dividend.