The Wall Street Walk when Blockholders Compete for Flows

64 Pages Posted: 23 May 2011 Last revised: 12 Mar 2015

Amil Dasgupta

London School of Economics (LSE); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Giorgia Piacentino

Washington University in St. Louis - John M. Olin Business School

Date Written: December 2014

Abstract

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.

Keywords: Governance, Exit, Delegated Portfolio Management, Career Concerns

Suggested Citation

Dasgupta, Amil and Piacentino, Giorgia, The Wall Street Walk when Blockholders Compete for Flows (December 2014). Journal of Finance, Forthcoming; AFA 2013 San Diego Meetings Paper; European Corporate Governance Institute (ECGI) - Finance Working Paper No. 430/2014. Available at SSRN: https://ssrn.com/abstract=1848001 or http://dx.doi.org/10.2139/ssrn.1848001

Amil Dasgupta (Contact Author)

London School of Economics (LSE) ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 7458 (Phone)
+44 20 7955 7420 (Fax)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Giorgia Piacentino

Washington University in St. Louis - John M. Olin Business School ( email )

St Louis, MO 63130
United Kingdom

HOME PAGE: http://giorgiapiacentino.com

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