64 Pages Posted: 23 May 2011 Last revised: 12 Mar 2015
Date Written: December 2014
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: 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