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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.Equity blockholders in publicly traded corporations who are dissatisfied with the actions of company management can sell their blocks-the so-called "Wall Street Walk." A growing * Dasgupta is at the London School of Economics, and is affiliated with CEPR and ECGI. 1 Accepted ArticleThis article is protected by copyright. All rights reserved. This article has been accepted for publication and undergone full peer review but has not been through the copyediting, typesetting, pagination and proofreading process, which may lead to differences between this version and the Version of Record. Please cite this article as doi: 10.1111/jofi.12308. theoretical literature starting with Pfleiderer (2009) andEdmans (2009) argues that the Wall Street Walk can be an effective form of governance. The exit of a blockholder will typically depress the stock price, punishing management whenever executive compensation is linked to the market price of equity. Thus, faced with a credible threat of exit, management will be reluctant to underperform. Admati and Pfleiderer argue that when blockholders observe managers underperforming, it is in their own interest to exit early before information about the manager's underperformance becomes public. This makes exit a credible threat that ameliorates managerial underperformance and enhances firm value. Edmans argues that informed institutional trading enhances the informational efficiency of the firm's equity in the secondary market, enabling myopic managers to make better investment decisions.The theoretical literature on exit treats the blockholder as a profit-maximizing principal:she acts as an individual owner of an equity block would. In contrast, a significant proportion of equity blocks is held by delegated portfolio managers who manage money for others (for example, mutual funds, and hedge funds).1 This matters because money managers often face short-term incentives that may lead them to behave in ways that are not conducive to good corporate governance. For example, as the EU (2011) Corporate Governance GreenPaper notes, It appears that the way asset managers' performance is evaluated... encourages asset managers to seek short-term benefits... The Commission believes that shortterm incentives... may contribute significantly to asset managers' short-termism, which probably has an impact on shareh...

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