Reputation and the Wall Street Walk

Asano, Koji (2023): Reputation and the Wall Street Walk.

Abstract

This study examines whether the threat of exit by blockholders can alleviate managers' moral hazard problems when they have reputation concerns in stock markets. When future cash flows decline over time, the threat of exit and reputation concerns both discipline managers. However, when future cash flows rise over time, blockholders trade based on information about the managers' commitment ability rather than their past performance, thereby weakening reputational discipline.

• Item Type: MPRA Paper
• Language: English
• Keywords: exit, reputation concerns, governance
• Subjects: G - Financial Economics > G1 - General Financial Markets > G10 - General; G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General; G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers ; Acquisitions ; Restructuring ; Corporate Governance

References

Admati, Anat R. and Paul Pfleiderer, “The “ Wall Street Walk ” and Shareholder Activism: Exit as a Form of Voice,” The Review of Financial Studies, 05 2009, 22 (7), 2645–2685.

Dasgupta, Amil and Giorgia Piacentino, “The Wall Street Walk when Blockholders Compete for Flows,” The Journal of Finance, 2015, 70 (6), 2853–2896.

Diamond, Douglas W, “Reputation Acquisition in Debt Markets,” The Journal of Political Economy, 1989, 97 (4), 828–862.

Edmans, Alex, “Blockholder Trading, Market Efficiency, and Managerial Myopia,” The Journal of Finance, 2009, 64 (6), 2481–2513.

Edmans, Alex and Clifford G. Holderness, “Chapter 8 - Blockholders: A Survey of Theory and Evidence,” in Benjamin E. Hermalin and Michael S. Weisbach, eds., The Handbook of the Economics of Corporate Governance, Vol. 1 of The Handbook of the Economics of Corporate Governance, North-Holland, 2017, pp. 541–636.