Traditional theories argue that large institutional blockholders have strong incentives to
monitor managers while individual investors are passive. Recent theories differentiate between direct intervention (engage in “voice”) and governance through trading (engaging in “exit”). Engaging in “voice” is strongest under a single large blockholder since this ownership structure reduces the free rider problem. Since most firms are held by multiple blockholders, I hypothesize that governance through trading plays a significant monitoring role in practice and that engaging in “voice” and “exit” can be substitutes. I show that abnormal turnover following earnings announcements is significantly higher for firms with large institutional blockholders than for those with small individual shareholders. For firms with majority institutional ownership, I demonstrate that abnormal trading is higher for firms with multiple blockholders than for those with a single large blockholder and that abnormal trading increases with the number of institutional investors and declines with the percent of stocks owned by the largest institutional investor. Moreover, this excess trading is driven by mutual fund investors, which are non-interventionist and thus are more likely to engage in “exit” than “voice”. I also hypothesize that the large blockholders’ threat of disciplinary exit is more credible when markets are liquid since large trades are easier to execute. I show that for firms with large institutional blockholders, abnormal trading following public announcements increases with liquidity.