Crushed by a Rational Stampede: Strategic Share Dumping and Shareholder Insurrections
CRA International, Incorporated
Thomas H. Noe
University of Oxford - Said Business School; University of Oxford - Balliol College; European Corporate Governance Institute
Nanyang Business School
Journal of Financial Economics, Vol. 79, No. 1, January 2006
In this paper, we develop a dynamic model of institutional share dumping surrounding control events. Institutional investors sometimes dump shares, despite trading losses, in order to manipulate share prices and trigger activism by "relationship" investors. These institutional investors are motivated to trade not only by trading profits but also by a desire to protect the value of their inventory and to disguise the quality of their own information. Relationship investor profit from targeting firms both by improving firm performance and by generating private information.
Keywords: Strategic trading, Ownership structure, Corporate governance
JEL Classification: G23, G32, G34Accepted Paper Series
Date posted: January 19, 2006
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