The Wall Street Stampede: Exit as Governance with Interacting Blockholders

Amil Dasgupta, Dragana Cvijanovic and Konstantinos Zachariadis

No 13870, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In firms with multiple blockholders governance via exit is affected by how blockholders react to each others' exit. Institutional investors, who hold the majority of equity blocks, are heterogeneous in their incentives. How do these incentives affect the manner in which institutional blockholders respond to each others' exit? We present a model that shows that open-ended institutional investors, who are subject to investor redemption risk, will be sensitive to an informed blockholder's exit, giving rise to correlated exits and strengthening governance. Thus, exposure to redemption risk, universally a negative force in asset pricing, plays a positive role in corporate governance. Using data on engagement campaigns by activist hedge funds we present large-sample evidence consistent with our theoretical mechanism.

Keywords: Corporate governance; Institutional investors; Exit; Herding (search for similar items in EconPapers)
Date: 2019-07
New Economics Papers: this item is included in nep-fmk
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Citations: View citations in EconPapers (6)

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Journal Article: The Wall Street stampede: Exit as governance with interacting blockholders (2022)
Working Paper: The wall street stampede: exit as governance with interacting blockholders (2022)
Working Paper: The Wall Street stampede: exit as governance with interacting blockholders (2021)
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