The Wall Street stampede: Exit as governance with interacting blockholders

The growth of the asset management industry has made it commonplace for firms to have multiple institutional blockholders. In such firms, the strength of governance via exit depends on how blockholders react to each other’s exit. We present a model to show that open-ended institutional investors suc...

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Bibliographic Details
Published inJournal of financial economics Vol. 144; no. 2; pp. 433 - 455
Main Authors Cvijanović, Dragana, Dasgupta, Amil, Zachariadis, Konstantinos E.
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.05.2022
Elsevier Sequoia S.A
Subjects
Asset management
Competition for flow
Corporate governance
Correlated trading
Governance via exit
Institutional investments
Institutional investors
Investors
Market timing
Mutual funds
G23
G34
Competition for flow
Correlated trading
Institutional investors
Governance via exit
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Summary:The growth of the asset management industry has made it commonplace for firms to have multiple institutional blockholders. In such firms, the strength of governance via exit depends on how blockholders react to each other’s exit. We present a model to show that open-ended institutional investors such as mutual funds react strongly to an informed blockholder’s exit, leading to correlated exits that enhance corporate governance. Our analysis points to a new role for mutual funds in corporate governance. We examine the trades of mutual funds around exits by activist hedge funds to present empirical evidence consistent with our model.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2022.02.005