Indeed, most investors stress monitoring and activism in relation to measures of performance, as opposed to governance in isolation. Starksrelationship investing and shareholder activism by institutional investors. Shareholderinitiated proxy proposals on corporate governance issues became popular in. Apr 07, 2015 the purpose of this post is to provide an overview of activism along this spectrum. Aug 14, 20 shareholder activism on the part of hedge funds has, over the past decade, played an increasingly important, and highprofile, role in the market, with money managers like ackman, daniel loeb, of. We view shareholder activism as a stochastic process that captures observable variability of shareholder demands received by targeted firms and the propensity for private, unobservable shareholder. To a large extent, activism is a debate about capital deployment, risk tolerance, and performancetopics that are typically part of managements and the boards agenda in the normal course of business. Fisher college of business, ohio state universio, columbus, oh 43210, usa received. Using a sample of shareholder proposals from 1993 to 20 and a handcollected data set of the political variables of public pension funds, we document evidence consistent with the political attention hypothesis. Levit, doron, soft shareholder activism october 17, 2014. Barber gallagher professor of finance graduate school. Can strong corporate governance selectively mitigate the.
Shareholder activism improves firm valuation denes, karpoff, and mcwilliams 2016 a few notable caveats. Walklingb school of business administration, university of washington, seattle, wa 98195, usa b max m. Pdf investor activism, managerial responsiveness, and. Wealth effects of the secs proposal to facilitate director nominations volume 47 issue 5 ali c. Pdf institutional investors, shareholder activism, and earnings. Karpoff university of washington 2066854954 email protected for presentation at the corporate governance i praksis. The importance of shareholder activism corporate outcomes has attracted great attention for from both the public and academia. A fairly small stake less than 10% of outstanding shares may be enough to launch a successful campaign. In some cases, organised labour is said to use shareholder activism tactics as a tool to affect corporate policies. The standard explanation portrays shareholder activism as a response to poor corporate performance, but the empirical literature provides inconclusive support, indicating the need for alternative or.
Pdf we study relationships between shareholder proposal activism, managerial response, and corporate social performance csp. Shareholder activism through the proxy process has been subject to intense academic debate in recent years. The practice consists of buying a minimum stake of a companys stock often only % and fully asserting ownership rights, in particular the right to vote on. Shareholder activism has become a dominant force in corporate activities today, and is a contentious topic in many corporate boardrooms. A shareholder activist is a person, who attempts to use his or her rights as a shareholder of a publiclytraded corporation to bring about change within or for the corporation. A large number of studies have examined the factors leading to shareholder activism related events, the different forms such activism can takeand its impact on firm practices.
A shareholder activist is a person who attempts to use his or her rights as a shareholder of a publiclytraded corporation to bring about change within or for the corporation. Karpoff j 1998 impact of shareholder activism on target. Activist shareholders purchase shares in a public company with the express purpose of effecting direct change on governance or strategy. Hedge fund activism, corporate governance, and firm performance alon brav, wei jiang, frank partnoy, and randall thomas abstract using a large handcollected data set from 2001 to 2006, we find that activist hedge funds in the. In particular, during the mid1980s, the involvement of large institutional shareholders increased dramatically with the advent of public pension fund activism. Specifically, four implications for investor relations can be derived from the rise of shareholder activism.
The evolution of shareholder activism in the united states. Firms that have inadequate csp are more likely to be targeted for activism rehbein et al. The disagreement persists despite numerous empirical studies on the topic. Shareholder activism and corporate governance in the united states. Shareholder voting lies at the foundation of a wide range of corporate governance protections. Preparing for bigger, bolder shareholder activists mckinsey. We conclude that shareholder activism in which the activist does not own a substantial block of shares is most often ineffectual, whereas activists that invest substantially in the target firm tend to have positive impacts on firm value and performance. Shareholder activism cases shareholder activism has become increasingly prominent in the investment world and a powerful force in corporate decision making in recent years1. What is shareholder activism and how can business best handle. It wasnt until the company won shareholder support for its own plan by clarifying its intentions that the activist withdrew. Shareholder activism and engagement your faith your finance.
Honors and awards best teacher award, uw executive mba graduating class, june 2015 award for outstanding contribution to research in corporate governance, center for corporate governance, drexel university, april 2015. No exit the logic of defensive shareholder activism andreas jansson abstract this paper examines the issue of what motivates shareholder activism. Hedge fund activism, corporate governance, and firm performance. A survey of empirical research article in journal of corporate finance 44 march 2016 with 158 reads how we measure reads. Research based on shareholder activism from the 1980s and 1990s generally finds few consequential effects, while activism in more recent years is more frequently associated with. First of all, shareholder activism is nothing new its existed ever since shareholders have had voting rights in the companies where they hold shares. In that article, bebchuk put forward a set of proposals designed to allow shareholders to initiate and vote to adopt changes in the. Essays on corporate governance and shareholder activism. Journal of ancial economics elsevier journal of financial economics 42 1996 365 395 corporate governance and shareholder initiatives. Most of those emphasizing changes in share values, earnings, or operations, in contrast, characterize shareholder activism as having negligible effects on target companies. Karpoff 2001 and romano 2001 conclude that institutional investor activism as a whole has little impact on firm performance. This paper studies the political incentive of public pension funds in shareholder activism. We summarize and synthesize the results from 73 studies that examine the consequences of shareholder activism for targeted firms, and draw two primary. Investor activism, managerial responsiveness, and corporate.
Shareholder activism through the proxy process by luc. The case of employee stock options expensing abstract we examine the economic consequences of more than 150 shareholder proposals to expense employee stock options eso submitted during the proxy seasons of 2003 and 2004, the first. At the heart of shareholder activism is the quest for value, yet the empirical evidence suggests that effects of such activism. Bebchuk 2005 advocates shareholder participation in corporate governance, and argues that shareholder initiated proxy proposals are a useful and relevant means of. A recent study by fti consulting shows that 76% of institutional investors had favorable views of shareholder activism, and 84% of them believed that activism did add value to a target company. The purpose of this research is to provide a better understanding of shareholder activism in south africa. Director primacy and shareholder disempowerment by stephen. The research achieves this by exploring the perspectives of company directors as they relate to the. Congress and activists recently proposed giving shareholders a say vote on executive pay. Activism that is not associated with the formation of ownership blocks is associated with insignificant or very small changes in target firm value. Shareholder activism gillan and stark 2007 and karpoff 2001 and more broadly, large investors monitoring of corporate managers shleifer and vishny. The complexity of these combinations helps to understand how difficult it is for directors to operate in shareholders interest. The impact of shareholder activism on financial reporting and compensation. Takeover defenses may redound to the benefit of newly listed companies because they preserve business relationships johnson, karpoff, and yi 2015.
Most of the aforementioned studies find that hedge fund activism is associated with significantly positive abnormal stock returns around the announcement, as well as operational. A conceptual discussion on shareholder activism has led to a. In particular as the ability of an independent audit committee to curb earnings management may constrain the relation between monitoring by the largest institutional investor and earnings management on one hand, and the relation between shareholder activism and earnings management, on the other. Shareholder activism and engagement the phrase shareholder activism refers to shareholders using their power to improve company policy and practice. The shareholder activism in india can be tracked down in the year of early 2010 when there was a mandatory requirement done by sebi related to the disclosing of voting policies related to domestic mutual funds as well as voting actions on an annual basis. Karpoff, 1999 and after litigation fich and shivdasani, 2007. Researchers emphasizing changes in target firms governance structures tend to characterize shareholder activism as a successful tool to improve firm performance. Active shareholder engagement safeguards the interests and the rights of the minority shareholders from the effect of agency relationships and from the consequences of the unique atmosphere of shareholder activism in malaysia. In fact, karpoff 2001 considers the question of what motivates shareholder activism as the number one in a long list of unresolved and underinvestigated issues in shareholder activism. Our third contribution is to document how shareholder activism recently has become. Activistimpelled divestitures and shareholder value. In comparison, a full takeover bid is a much more costly and difficult undertaking. A survey of empirical findings abstract researchers and investors disagree over the extent to which shareholder activism facilitates improvements in target firms values, earnings, operations, and governance structures. The phrase is used in a number of different ways, which can be confusing.
Most evidence indicates that shareholder activism can prompt small changes in target firms governance structures, but has negligible impact on share values and earnings karpoff 2001 a small number of american institutional investors spend a trivial amount of money on overt activism efforts institutions. Research based on shareholder activism from the 1980s and 1990s generally finds few consequential effects, while activism in more. Managed distribution policies in closedend funds and. We summarize and synthesize the results from 73 studies that examine the consequences of shareholder activism for targeted firms, and draw two primary conclusions. When shareholder activism goes too far the new yorker. Research based on shareholder activism from the 1980s and 1990s generally finds few consequential effects, while activism in more recent years is more frequently associated with increased share values and operating performance. An activist shareholder is a shareholder that uses an equity stake in a corporation to put pressure on its management. We revisit the question of the motivation and impact of pension fund activism by studying the shareholder proposals of the largest and most active funds from 1987 through 1993.
In closedend funds, a managed distribution policy mdp is a dividend commitment potentially requiring the liquidation of assets. Pdf shareholder activism and the new role of investor. Most evidence indicates that shareholder activism can prompt small changes in target firms governance structures, but has negligible impact on share values and earnings karpoff 2001 a small number of american institutional investors spend a trivial amount of money on overt activism. Karpoff, 2001 could be interpreted as support for the position that there is a positive relationship between liquidity and shareholder activism, since large firms stock presumably is. Bebchuk 2005 advocates shareholder participation in corporate governance, and argues that shareholder initiated proxy proposals are a useful and relevant means of countering managerial agency problems. Request pdf the impact of shareholder activism on target. In the second essay, consequences to directors of shareholder activism, coauthored. First, activism that adopts some characteristics of corporate takeovers, especially significant stockholdings, is associated with improvements in share values and firm operations. Maug 1996, found that a liquid stock market is beneficial because it makes investor activism a more effective. This paper provides evidence on the corporate governance role of shareholder initiated proxy proposals.
A read is counted each time someone views a publication summary such as the title, abstract, and list of authors, clicks on a figure, or views or downloads the fulltext. New evidence from the splitshare structure reform in china li liao meijuan shi hao wang november 24, 2008 abstract we examine shareholder activism in the recent splitshare structure reform in china. The impact of shareholder activism on target companies. The role of shareholder proposals in corporate governance. Second, shareholder activism has become more value increasing over time. The shareholder involved continued his campaign even after the board adopted a poisonpill approach that would have diluted shareholders in the event of a hostile takeover bid. Institutional investors, shareholder activism, and. We find that when the house passed the sayonpay bill, the market reaction was significantly positive for firms with high abnormal chief executive officer ceo compensation, with low payforperformance sensitivity, and responsive to shareholder pressure. Karpoff j 1998 impact of shareholder activism on target companies a survey of from economics 220. Academic studies in the united states started in the late 1990s and initially produced less encouraging results. May 20, 2015 second, shareholder activism has become more value increasing over time. Karpoff, malatesta, and walkling 1996 find little evidence that operating performance or share price improves for companies that are the targets of a shareholder proposal. Shareholder activism is an exercise of power, sometime benign, sometimes threatening to the interests of corporate management, boards and other shareholders.