The Wall Street Stampede: Exit as Governance with Interacting Blockholders

The Wall Street Stampede: Exit as Governance with Interacting Blockholders

Dragana Cvijanović, Amil Dasgupta, Konstantinos Zachariadis

Series number :

Serial Number: 
632/2019

Date posted :

October 22 2019

Last revised :

June 14 2021
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Keywords

  • institutional investors • 
  • competition for flow • 
  • exit governance • 
  • correlated trading

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 large-sample evidence consistent with our model.

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Authors

Real name:
Dragana Cvijanović