The Wall Street stampede: Exit as governance with interacting blockholders

Dragana Cvijanović, Amil Dasgupta and Konstantinos Zachariadis

Journal of Financial Economics, 2022, vol. 144, issue 2, 433-455

Abstract: 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.

Keywords: Institutional investors; Competition for flow; Governance via exit; Correlated trading (search for similar items in EconPapers)
JEL-codes: G23 G34 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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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)
Working Paper: The Wall Street Stampede: Exit as Governance with Interacting Blockholders (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:144:y:2022:i:2:p:433-455

DOI: 10.1016/j.jfineco.2022.02.005

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