The Wall Street Walk when Blockholders Compete for Flows

The Wall Street Walk when Blockholders Compete for Flows

Amil Dasgupta, Giorgia Piacentino

Series number :

Serial Number: 
430/2014

Date posted :

June 01 2014

Last revised :

June 30 2014
SSRN Share

Keywords

  • governance • 
  • exit • 
  • delegated portfolio management • 
  • Career Concerns

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 affective 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.

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Published in

Published in: 
Publication Title: 
Journal of Finance
Description: 
Volume71, Issue 6, December 2016, Pages 2933-2966

Authors

Real name: 
Giorgia Piacentino