Wolf pack activism

Alon Brav, Amil Dasgupta and Richmond D. Mathews

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

Abstract: Blockholder monitoring is central to corporate governance, but blockholders large enough to exercise significant unilateral influence are rare. Mechanisms that enable moderately sized blockholders to exert collective influence are therefore important. Existing theory suggests that engagement by moderately sized blockholders is unlikely, especially when the blocks are held by delegated asset managers who have limited skin in the game. We present a model in which multiple delegated blockholders engage target management in parallel, that is, “wolf pack activism.” Delegation reduces skin in the game, which decreases incentives for engagement. However, it also induces competition over investor capital (i.e., competition for flow). We show that this increases engagement incentives and helps ameliorate the problem of insufficient engagement, although it can also foster excess engagement. Under competition for flow, the total amount of capital seeking skilled activist managers is relevant to engagement incentives, which helps to predict when and where wolf packs arise. Flow incentives are particularly valuable in incentivizing engagement by packs with smaller members.

Keywords: corporate governance; blockholder monitoring; institutional investors; reputation concerns; strategic complementarity; activist hedge funds; competition for flow; shareholder activism (search for similar items in EconPapers)
JEL-codes: G23 G34 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2022-08-01
New Economics Papers: this item is included in nep-gth and nep-isf
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Management Science, 1, August, 2022, 68(8), pp. 5557 - 5568. ISSN: 0025-1909

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:112118

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