Leader-Follower Dynamics in Shareholder Activism

RePEc Short ID: pce204
ORCID iD: 0000-0002-1934-4685

Cetemen, Doruk; Cisternas, Gonzalo; Kolb, Aaron; Viswanathan, S

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Leader-Follower Dynamics in Shareholder Activism

Abstract: We propose a theory of coordination and influence among blockholders. Privately informed activists time their trades in sequence to lower acquisition costs, prompting a strategic use of order flows. Leader activists create trading gains for their followers, ultimately influencing their willingness to bear greater value-enhancing intervention costs. Through this channel, informed trades can exhibit predictability, in sharp contrast with Kyle (1985). We explain how this novel predictability shapes free-rider problems affecting governance, and how it produces price abnormalities analogous to those documented empirically. We also uncover how private information interdependence can be a key catalyst for the mechanism studied.

JEL Classification: D82; G14; G23;