Competition for flow and and short-termism in activism

Dasgupta, Amil ORCID: 0000-0001-8474-9470 and Burkart, Mike ORCID: 0000-0002-0954-4499 (2020) Competition for flow and and short-termism in activism. Review of Corporate Finance Studies, 10 (1). pp. 44-81. ISSN 2046-9128

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Abstract

We develop a dual-layered agency model to study blockholder monitoring by activist funds that compete for investor flow. Competition for flow affects the manner in which activist funds govern as blockholders. In particular, funds inflate short-term performance by increasing payouts financed by higher (net) leverage, which subsequently discourages value-creating interventions in economic downturns due to debt overhang. Our theory suggests a new channel via which asset manager incentives may foster economic fragility and links together the observed procyclicality of activist investments with the documented effect of such funds on the leverage of their target companies.

Item Type:	Article
Official URL:	https://academic.oup.com/rcfs
Additional Information:	© 2020 Oxford University Press
Divisions:	Finance
Subjects:	H Social Sciences > HG Finance H Social Sciences > HB Economic Theory
JEL classification:	G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers; Acquisitions; Restructuring; Corporate Governance G - Financial Economics > G2 - Financial Institutions and Services > G23 - Pension Funds; Other Private Financial Institutions
Date Deposited:	08 Sep 2020 09:54
Last Modified:	12 Dec 2024 02:18
URI:	http://eprints.lse.ac.uk/id/eprint/106516

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