The 'Wall Street Walk' and Shareholder Activism: Exit as a Form of Voice

46 Pages Posted: 21 Sep 2007 Last revised: 29 Sep 2009

See all articles by Anat R. Admati

Anat R. Admati

Stanford Graduate School of Business

Paul C. Pfleiderer

Stanford Graduate School of Business

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Abstract

We examine whether a large shareholder can alleviate conflicts of interest between managers and shareholders through the credible threat of exit on the basis of private information. In our model, the threat of exit often reduces agency costs, but additional private information need not enhance the effectiveness of the mechanism. Moreover, the threat of exit can produce quite different effects depending on whether the agency problem involves desirable or undesirable actions from shareholders' perspective. Our results are consistent with empirical findings on the interaction between managers and minority large shareholders and have further empirical implications.

Keywords: shareholder activism, exit, agency, Corporate Governance, monitoring, manager-shareholders conflict, mutual funds

JEL Classification: G34, G32, D82

Suggested Citation

Admati, Anat R. and Pfleiderer, Paul C., The 'Wall Street Walk' and Shareholder Activism: Exit as a Form of Voice. Review of Financial Studies, Forthcoming; Stanford Graduate School of Business Research Paper No. 1918(R2); Rock Center for Corporate Governance Working Paper No. 22. Available at SSRN: https://ssrn.com/abstract=1015940

Anat R. Admati (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
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650-723-4987 (Phone)
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Paul C. Pfleiderer

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-4495 (Phone)
650-725-7979 (Fax)

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