Wolf Pack Activism

60 Pages Posted: 23 Nov 2014 Last revised: 25 May 2021

See all articles by Alon Brav

Alon Brav

Duke University - Fuqua School of Business; European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Amil Dasgupta

London School of Economics (LSE); European Corporate Governance Institute (ECGI)

Richmond D. Mathews

University of Maryland - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: May 10, 2021

Abstract

Blockholder monitoring is central to corporate governance, but blockholders large enough to exercise significant unilateral influence are rare. Mechanisms that enable moderately-sized blockholders to exert collective influence are therefore important. Existing theory suggests that engagement by moderately-sized blockholders is unlikely, especially when the blocks are held by delegated asset managers who have limited skin in the game. We present a model in which multiple delegated blockholders engage target management in parallel, i.e., “wolf pack activism.” Delegation reduces skin in the game, which decreases incentives for engagement. However, it also induces competition over investor capital (i.e, competition for flow). We show that this increases engagement incentives and helps ameliorate the problem of insufficient engagement, though it can also foster excess engagement. Under competition for flow the total amount of capital seeking skilled activist managers is relevant to engagement incentives, which helps to predict when and where wolf packs arise. Flow incentives are particularly valuable in incentivizing engagement by packs with smaller members.

Keywords: corporate governance; blockholder monitoring; institutional investors; reputation concerns; strategic complementarity

JEL Classification: G34, G23

Suggested Citation

Brav, Alon and Dasgupta, Amil and Mathews, Richmond D., Wolf Pack Activism (May 10, 2021). Management Science, forthcoming, European Corporate Governance Institute (ECGI) - Finance Working Paper No. 501/2017, Robert H. Smith School Research Paper No. RHS 2529230, Available at SSRN: https://ssrn.com/abstract=2529230 or http://dx.doi.org/10.2139/ssrn.2529230

Alon Brav

Duke University - Fuqua School of Business ( email )

100 Fuqua Drive
Durham, NC 27708-0120
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919-684-2818 (Fax)

European Corporate Governance Institute (ECGI) ( email )

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National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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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)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Richmond D. Mathews

University of Maryland - Department of Finance ( email )

Robert H. Smith School of Business
Van Munching Hall
College Park, MD 20742
United States

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