Minority shareholder activism in light of the Indian companies act, 2013

Abstract

Purpose The genesis of “shareholder activism” in the USA may be traced back to several decades, but it only evolved in India at the start of the 21st century. This paper aims to explore the concept of “shareholder activism” in the Indian context, in light of the New Companies Act, 2013. The act is envisioned as a precursor to invoking the intention of shareholders to confront managers. Further, it aims to look at the possibilities of using tools of shareholder activism to make companies aware of their concerns. Design/methodology/approach Authors explore the concept of shareholder activism with the help of textual analysis, using R. Then, the authors study the mediating effects of “shareholder’s intention towards activism” between the “regulatory mechanisms” and “the usage of various tools of activism”, using the partial least square approach. Findings Regulatory mechanisms, such as the Companies Act, 2013, enhance the shareholders’ power to sensitise companies towards various corporate governance issues. It also increases their intention towards shareholder activism, eventually leading to favourable opinion on using various tools of “activism” in their investee companies. Practical implications This study is a unique attempt to assess the minority shareholders’ potential to become active in their investee companies induced by changes in the rules and regulations of a country. Originality/value Shareholder activism in India has not been thoroughly explored thus far. This paper specifically studies the opinions of retail investors, who possibly could increase companies’ accountability towards their minority shareholders, especially in light of the New Companies Act, 2013.

The adoption of shareholder activism by minority investors in Mauritius and a comparative analysis with the UK laws

“…The media is also instrumental in fostering the desired changes as by highlighting the wrongdoings of a corporation, the public becomes acquainted with more ease due to the enhanced propagation of online media especially and hence, the latter has a tendency to incline towards advocating for shareholders’ protection. It follows that the minority shareholders are more than ever making use of social media platforms to illustrate their concerns and it is imperative to mention that adverse media reports may massively impact on reduce the profitability of an organisation as highlighted by Sharma and Sachdeva (2022). Similarly, gaining public support to raise awareness of the reasons of disagreement with the management of a company is another method of activism by shareholders.…”

“…However, several studies have emphasised on the importance of minority shareholder activism to bring positive outcome to a firm’s financial performance (Ali et al , 2022; El-Chaarani et al , 2022). More specifically, Sharma and Sachdeva (2022) are of the opinion that the low involvement level of minority shareholders to monitor the activities of a company is behind the main reasons for scams, financial fraud and governance issues. Accordingly, increasing minority shareholders’ participation may improve good corporate governance practices and ultimately, an enhanced financial performance in any country.…”