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Journal of Finance Vol. 70 No. 6 2015

The Wall Street Walk when Blockholders Compete for Flows

Amil Dasgupta1; Giorgia Piacentino2,3,4,5

1 London School of Economics and Political Science · 2 EDF Energy (United Kingdom) · 3 Washington University in St. Louis · 4 University College London · 5 University of Hong Kong

open access

Abstract

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 effective 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.

DOI
10.1111/jofi.12308
Volume
70
Issue
6
Pages
2853-2896
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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