Crushed by a Rational Stampede: Strategic Share Dumping and Shareholder Insurrections

51 Pages Posted: 22 Mar 2002 Last revised: 8 Jan 2018

See all articles by Mukarram Attari

Mukarram Attari

CRA International, Incorporated

Suman Banerjee

Stevens Institute of Technology; Stevens Institute of Technology

Thomas H. Noe

University of Oxford - Said Business School; University of Oxford - Balliol College; Bank of Finland; European Corporate Governance Institute

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2002

Abstract

In this paper, we develop a dynamic model of institutional share dumping surrounding control events. Uninformed institutional investors dump shares, despite trading losses, in order to manipulate share prices and trigger activism by activist "relationship" investors. Nonactivist institutional investors, who have private information regarding both firm value and the quality of their own information, are motivated to trade not only by trading profits but also by a desire to protect the value of their inventory and to disguise the quality of the information underlying their trades. Relationship investors, who use price and volume information to identify target firms, profit both from improving firm performance and from their private information about their own targeting activity. In addition to explicating recent empirical results on the relationship between institutional investor trading and corporate control events, the paper provides a number of new insights into the interaction between market microstructure and corporate governance, including predictions regarding the effect of share volume on subsequent governance activity, the relationship between the trading patterns of activist and nonactivist strategic investors, the effect of order flow on subsequent shareholder activism, and the effect of institutions' portfolio positions on the informativeness of their trading activity.

Keywords: Capital and Ownership Structure and Corporate Governance

JEL Classification: G23, G32, G34

Suggested Citation

Attari, Mukarram and Banerjee, Suman and Noe, Thomas H., Crushed by a Rational Stampede: Strategic Share Dumping and Shareholder Insurrections (February 1, 2002). Journal of Financial Economics (JFE), Forthcoming; EFA 2002 Berlin Meetings Presented Paper. Available at SSRN: https://ssrn.com/abstract=302896 or http://dx.doi.org/10.2139/ssrn.302896

Mukarram Attari

CRA International, Incorporated ( email )

1201 F. St. NW
Ste. 700
Washington, DC 20004
United States
617-425-3336 (Phone)

Suman Banerjee

Stevens Institute of Technology ( email )

525 River Street
Hoboken, NJ 07030
United States
2012613689 (Phone)

Stevens Institute of Technology ( email )

Hoboken, NJ 07030
United States

Thomas H. Noe (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 3BJ
United Kingdom

University of Oxford - Balliol College ( email )

Broad St
Oxford, OX1 3BJ
United Kingdom

Bank of Finland ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

European Corporate Governance Institute ( email )

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

Register to save articles to
your library

Register

Paper statistics

Downloads
1,092
Abstract Views
4,332
rank
18,979
PlumX Metrics