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This article answers, in the affirmative, two core research questions: do we need long-term shareholders and can we find them? The economy needs long-term shareholders to provide prudent and profitable patient capital, generate an antidote to corporate short-termism and spearhead managerial accountability. Finding these shareholders requires a structure that provides the right environment and incentives for such investment. The article presents a novel application of the trust fund theory – the dominant philosophical paradigm of American corporate finance in the 19th century - as a vehicle for stimulating long-term shareholding. The central features of the reformulated trust fund theory include the creation of relatively illiquid trust securities, a permanent fund financed by the sale of the securities, and long-term shareholders who, in exchange for less liquidity, receive an enhanced voice in corporate governance. Apart from addressing the need for long-term shareholding, the revised trust fund theory will also serve the additional functions of providing creditor protection and assuring regulatory compliance.
- Trust fund theory,
- patient capital,
- short-termism,
- long-term shareholder primacy,
- illiquidity,
- share transfer restrictions,
- bonds,
- exit,
- voice,
- monitoring,
- creditor protection,
- agency costs
Available at: http://works.bepress.com/emeka_duruigbo/4/