The Wall Street Stampede: Exit as Governance with Interacting Blockholders

67 Pages Posted: 23 Oct 2019 Last revised: 11 Jun 2021

See all articles by Dragana Cvijanovic

Dragana Cvijanovic

Cornell SC Johnson College of Business

Amil Dasgupta

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

Konstantinos E. Zachariadis

School of Economics and Finance, Queen Mary University of London

Multiple version iconThere are 2 versions of this paper

Date Written: May 28, 2021

Abstract

The growth of the asset management industry has made it commonplace for firms to have multiple institutional blockholders. In such firms, the strength of governance via exit depends on how blockholders react to each other's exit. We present a model to show that open-ended institutional investors such as mutual funds react strongly to an informed blockholder's exit, leading to correlated exits that enhance corporate governance. Our analysis points to a new role for mutual funds in corporate governance. We examine the trades of mutual funds around exits by activist hedge funds to present large-sample evidence consistent with our model.

Keywords: institutional investors, competition for flow, exit governance, correlated trading

JEL Classification: G23, G34

Suggested Citation

Cvijanovic, Dragana and Dasgupta, Amil and Zachariadis, Konstantinos E., The Wall Street Stampede: Exit as Governance with Interacting Blockholders (May 28, 2021). European Corporate Governance Institute – Finance Working Paper No. 632/2019 , Available at SSRN: https://ssrn.com/abstract=3473877 or http://dx.doi.org/10.2139/ssrn.3473877

Dragana Cvijanovic (Contact Author)

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

Amil Dasgupta

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

Konstantinos E. Zachariadis

School of Economics and Finance, Queen Mary University of London ( email )

Graduate Centre
Mile End Campus
London, E1 4NS
United Kingdom
+44 20 7882 8698 (Phone)

HOME PAGE: http://www.konstantinosezachariadis.com

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