The Wall Street walk when blockholders compete for flows

Amil Dasgupta and Giorgia Piacentino

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Effective monitoring by equity blockholders is important for good corporate governance. A prominent theoretical literature argues that the threat of block sale (“exit”) can be an effective governance mechanism. Many blockholders are money managers. We show that when money managers compete for investor capital, the threat of exit loses credibility, weakening its governance role. Money managers with more skin in the game will govern more successfully using exit. Allowing funds to engage in activist measures (“voice”) does not alter our qualitative results. Our results link widely prevalent incentives in the ever-expanding money management industry to the nature of corporate governance.

JEL-codes: F3 G3 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2015-12-01
New Economics Papers: this item is included in nep-fmk
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Citations: View citations in EconPapers (31)

Published in Journal of Finance, 1, December, 2015, 70(6), pp. 2853 - 2896. ISSN: 0022-1082

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:63144

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