The Journal of Finance

The Wall Street Walk when Blockholders Compete for Flows

Published: 11/12/2015,  Volume: 70,  Issue: 6  |  DOI: 10.1111/jofi.12308  |  Cited by: 81

AMIL DASGUPTA, GIORGIA PIACENTINO

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.

Institutional Trade Persistence and Long‐Term Equity Returns

Published: 3/21/2011,  Volume: 66,  Issue: 2  |  DOI: 10.1111/j.1540-6261.2010.01644.x  |  Cited by: 176

AMIL DASGUPTA, ANDREA PRAT, MICHELA VERARDO

Recent studies show that single‐quarter institutional herding positively predicts short‐term returns. Motivated by the theoretical herding literature, which emphasizes endogenous persistence in decisions over time, we estimate the effect of multiquarter institutional buying and selling on stock returns. Using both regression and portfolio tests, we find that persistent institutional trading negatively predicts long‐term returns: persistently sold stocks outperform persistently bought stocks at long horizons. The negative association between returns and institutional trade persistence is not subsumed by past returns or other stock characteristics, is concentrated among smaller stocks, and is stronger for stocks with higher institutional ownership.

Ties That Bind: How Business Connections Affect Mutual Fund Activism

Published: 11/10/2016,  Volume: 71,  Issue: 6  |  DOI: 10.1111/jofi.12425  |  Cited by: 167

DRAGANA CVIJANOVIĆ, AMIL DASGUPTA, KONSTANTINOS E. ZACHARIADIS

We investigate whether business ties with portfolio firms influence mutual funds' proxy voting using a comprehensive data set spanning 2003 to 2011. In contrast to prior literature, we find that business ties significantly influence promanagement voting at the level of individual pairs of fund families and firms after controlling for Institutional Shareholder Services (ISS) recommendations and holdings. The association is significant only for shareholder‐sponsored proposals and stronger for those that pass or fail by relatively narrow margins. Our findings are consistent with a demand‐driven model of biased voting in which company managers use existing business ties with funds to influence how they vote.

Target Behavior and Financing: How Conclusive Is the Evidence?

Published: 7/16/2009,  Volume: 64,  Issue: 4  |  DOI: 10.1111/j.1540-6261.2009.01479.x  |  Cited by: 242

XIN CHANG, SUDIPTO DASGUPTA

The notion that firms have a debt ratio target that is a primary determinant of financing behavior is influential in finance. Yet, how definitive is the evidence? We address this issue by generating samples where financing is unrelated to a firm's current debt ratio or a target. We find that much of the available evidence in favor of target behavior based on leverage ratio changes can be reproduced for these samples. Taken together, our findings suggest that a number of existing tests of target behavior have no power to reject alternatives.

Buyer–Supplier Relationships and the Stakeholder Theory of Capital Structure

Published: 9/10/2008,  Volume: 63,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2008.01403.x  |  Cited by: 566

SHANTANU BANERJEE, SUDIPTO DASGUPTA, YUNGSAN KIM

Firms in bilateral relationships are likely to produce or procure unique products—especially when they are in durable goods industries. Consistent with the arguments of Titman and Titman and Wessels, such firms are likely to maintain lower leverage. We compile a database of firms' principal customers (those that account for at least 10% of sales or are otherwise considered important for business) from the Business Information File of Compustat and find results consistent with the predictions of this theory.

Financial Constraints, Competition, and Hedging in Industry Equilibrium

Published: 9/4/2007,  Volume: 62,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2007.01280.x  |  Cited by: 116

TIM ADAM, SUDIPTO DASGUPTA, SHERIDAN TITMAN

We analyze the hedging decisions of firms, within an equilibrium setting that allows us to examine how a firm's hedging choice depends on the hedging choices of its competitors. Within this equilibrium some firms hedge while others do not, even though all firms are ex ante identical. The fraction of firms that hedge depends on industry characteristics, such as the number of firms in the industry, the elasticity of demand, and the convexity of production costs. Consistent with prior empirical findings, the model predicts that there is more heterogeneity in the decision to hedge in the most competitive industries.

Analyst Coverage and Financing Decisions

Published: 12/2006,  Volume: 61,  Issue: 6  |  DOI: 10.1111/j.1540-6261.2006.01010.x  |  Cited by: 465

XIN CHANG, SUDIPTO DASGUPTA, GILLES HILARY

We provide evidence that analyst coverage affects security issuance. First, firms covered by fewer analysts are less likely to issue equity as opposed to debt. They issue equity less frequently, but when they do so, it is in larger amounts. Moreover, these firms depend more on favorable market conditions for their equity issuance decisions. Finally, debt ratios of less covered firms are more affected by Baker and Wurgler's (2002) “external finance‐weighted” average market‐to‐book ratio. These results are consistent with market timing behavior associated with information asymmetry, as well as behavior implied by dynamic adverse selection models of equity issuance.