Wolf Pack Activism
54 Pages Posted: 23 Nov 2014 Last revised: 1 Aug 2019
Date Written: May 1, 2019
Blockholder monitoring is central to corporate governance, but blockholders large enough to exercise significant unilateral influence are rare. Mechanisms that enable small blockholders to exert collective influence are therefore important. We present a model in which one or more sizeable lead activists implicitly coordinate with many smaller followers in engaging target management. Our model formalizes a key source of complementarity across the engagement strategies of institutional blockholders, arising from their motivation to attract investment flows, which overcomes free riding even for small blockholders and enables coordinated engagement. We also endogenize ownership changes in anticipation of activism campaigns.
Keywords: corporate governance; blockholder monitoring; institutional investors; reputation concerns; strategic complementarity
JEL Classification: G34, G23
Suggested Citation: Suggested Citation