Shareholder Activism as a Corrective Mechanism in Corporate Governance

Rose, Paul; Sharfman, Bernard S.

doi:10.2139/ssrn.2324151

Cited by 12 publications

(11 citation statements)

References 2 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Meanwhile, a victory by shareholder activists over the management of Hudbay Minerals was followed by a subsequent share price decrease, in contrast to the example of CP above (ibid.). These examples are consistent with the argument of Rose and Sharfman (2014) that shareholder activism can provide value; however it should be considered on a case-by-case basis.…”

supporting

confidence: 81%

Implications of shareholder activism

Anand¹

2017

Global Capital Markets

View full text Add to dashboard Cite

supporting

confidence: 81%

Implications of shareholder activism

Anand¹

2017

Global Capital Markets

View full text Add to dashboard Cite

“…Offensive shareholder activism operates in the market to influence the corporate company and not to control it. That is to say, shareholder activists try to influence corporate decision-making without using the resources necessary to gain control (Rose and Sharfman, 2015).…”

Section: Theoretical Background and Hypotheses Developmentmentioning

confidence: 99%

Shareholder activism, earnings management and Market performance consequences: French case

Bouaziz

Fakhfakh

Jarboui

2020

IJLMA

View full text Add to dashboard Cite

Purpose The purpose of this study is to investigate the impact of the relationship between shareholder activism and earnings management on the market performance of French companies. Design/methodology/approach This study used 385 firm-year observations drawn from a sample of French companies belonging to the SBF 120 index from 2008 to 2012. Data was collected from annual reports of sample companies. To measure earnings management, this study used the model of Raman and Shahrur (2008). The relationship between shareholder activism, earnings management and market performance using the panel data regression model was empirically examined. Findings The results prove that shareholder activism, as indicated by shareholder proposals, has no impact on market performance. However, the existence of shareholder activism affects the market performance positively. In fact, a minimum of proposals proves that shareholder activism plays an appropriate and effective role in creating value. Thus, several activists would resort to “a private activism” which could be the best and the least expensive form. This form of activism is called “behind the scenes.” Findings also show that earnings management has a negative impact on market performance. As a matter of fact, these findings allow to conclude that the firm performance decreases whenever managers undertake to earnings management. Also, earnings management behavior is mainly opportunistic. Finally, the relationship between shareholder activism and earnings management has no impact on market performance. This result reveals that shareholder activism proves to be an ineffective mechanism that does not alter the accounting choices, particularly in relation to earnings management. This result shows the inability of active shareholders to define and implement strategies across their proposals, namely, “the lack of monitoring competence.” Research limitations/implications It is important in future research to evaluate the impact of behind the scenes interventions on corporate governance. Also, this paper gives a larger dimension to the effect of shareholder activism on the market performance in the specific context of earnings management, thus justifying the need to expand this study using other methodologies to deepen and better understand this relationship in this context. Practical implications The paper's evidence contributes to an understanding of corporate governance. The finding of this study will help in monitoring and controlling fraudulent earnings management practices that effect on market performance. Further, this study is important to investors, academics and policymakers, as it demonstrates that governance reforms that encourage firms to adopt better governance practices that reduce the likelihood of earnings management. Originality/value To the best of the author’s knowledge, this paper pioneers in focusing on the impact of the shareholder activism and earnings management on the market performance because previous studies put more emphasis on pair-wise relations (Shareholder activism-earnings management, earnings management-market performance and shareholder activism-market performance). This study provides empirical evidence on the effectiveness of the relationship between shareholder activism and earnings management on market performance.

show abstract

“…Then, owners have to monitor management and address the conflicts of interest that arise in their relationship (Jensen & Meckling, 1976). Corporate governance is a set of mechanisms that includes contracting, such as in property rights, executive compensation and debt covenants, as well as corrective shareholder engagement that seeks to align the interests of managers and owners (Rose & Sharfman, 2014). The largest shareholders hold a majority portion of voting equity capital, engage in management, and dominate the board.…”

Section: Theoretical Frameworkmentioning

confidence: 99%

Role of No-Voting shareholder activism in corporate governance in a developing Arab country

Albakoush

Ishak

2019

Problems and Perspectives in Management

View full text Add to dashboard Cite

Because of agency conflict in firms with dispersed ownership, governance mechanisms to mitigate this agency cost, such as shareholders’ active monitoring of the firm’s management, have been developed. However, shareholder activism is contextual; therefore, the characteristics of shareholder activism in corporate governance practices in Libyan listed companies we explored. The data were collected from the 42 non-financial and 22 financial companies listed in the Libyan stock market during 2007–2016. Data envelopment analysis was done to generate an efficiency score based on corporate governance and shareholder activism. Linear regression analysis was used to determine whether a relationship exists between the efficiency of corporate governance and shareholder activism. All the companies were characterized by joint private-government ownership. The companies had an average corporate governance index of 2.24. Implementation of the Libyan good corporate governance practices is anticipated to give a score ≥ 2.95.Vote “No” shareholder activism targeting the boards of directors and their committees was the predominant form of shareholder activism (average number of annual events = 3.08) compared to shareholder proposal (average annual events = 1.67) and shareholder negotiation with management (average annual events = 1.6). Shareholder activism was more frequent in companies with low than with average governance scores compared to those with above-average governance scores. Moreover, the scores of shareholder activism were inversely related to corporate governance scores (r = –0.766, p < 0.01). Ordinary least-squares regression analysis revealed that a decrease in corporate governance score of one unit was associated with a 57% increase in shareholder activism (B = –0.57, F = 30.64, p < 0.01).Our study findings indicate that poor corporate governance practices do influence the frequency of shareholder activism in Libyan listed companies. Vote “No” activism is the most frequently used form of shareholder activism. The less frequent use of shareholder proposals and negotiation with management is probably related to legal and sociocultural factors.

show abstract

Shareholder Activism as a Corrective Mechanism in Corporate Governance

Cited by 12 publications

References 2 publications

Implications of shareholder activism

Implications of shareholder activism

Shareholder activism, earnings management and Market performance consequences: French case

Role of No-Voting shareholder activism in corporate governance in a developing Arab country

Contact Info

Product

Resources

About