Leader-Follower Dynamics in Shareholder Activism

Esat Doruk Cetemen, Gonzalo Cisternas, Aaron Kolb () and S Viswanathan
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Aaron Kolb: https://kelley.iu.edu/faculty-research/faculty-directory/profile.html?id=KOLBA

No 1030, Staff Reports from Federal Reserve Bank of New York

Abstract: We propose a theory of coordination and influence among blockholders. Privately informed activists time their trades in sequence to lower acquisition costs, prompting a strategic use of order flows. Leader activists create trading gains for their followers, ultimately influencing their willingness to bear greater value-enhancing intervention costs. Through this channel, informed trades can exhibit predictability, in sharp contrast with Kyle (1985). We explain how this novel predictability shapes free-rider problems affecting governance, and how it produces price abnormalities analogous to those documented empirically. We also uncover how private information interdependence can be a key catalyst for the mechanism studied.

Keywords: activism; insider trading; Blockholding; hedge funds (search for similar items in EconPapers)
JEL-codes: D82 G14 G23 (search for similar items in EconPapers)
Pages: 60
Date: 2022-09-01
New Economics Papers: this item is included in nep-gth and nep-mst
Note: Revised July 2025. Previous titles: “Activist Manipulation Dynamics” and "Activist Trading Dynamics"
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Working Paper: Leader-Follower Dynamics in Shareholder Activism (2023)
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