Thirty Years of Shareholder Activism: A Survey of Empirical Research

Denes, Matthew; Karpoff, Jonathan M.; McWilliams, Victoria B.

doi:10.2139/ssrn.2608085

Cited by 24 publications

(19 citation statements)

References 136 publications

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“…In the economy, such behaviors occur on different levels. For example, stockholders of public companies regularly act aggressively opposite company CEOs to pursue their dismission, even if this may not be rational (Allaire and Dauphin, , Clayton et al, ; Denes et al, ). Zaardkoohi et al (, 5) suggest that such processes of executive succession may be “one of the manifestations of the principal problem.” Whilst building on the same approach of self‐interest seeking with dominance, principal opportunism within organizations is less easy to detect and less transparent.…”

Section: Principals and Agents In Interaction – An Opportunism Gamementioning

confidence: 99%

The Opportunistic Principal

Wagner

2019

Kyklos

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SUMMARY This article sheds light on a surprisingly persistent gap in economic theory: Economists have extensively studied agency relationships between principals and agents, but economic analysis has traditionally been preoccupied with problems created by agents rather than principals. Principal‐agent theory traditionally neglects opportunism on part of the principals. As a result, economic theory fails to fully explain gaps in economic performance. Even worse, the for decades biased concept of opportunism has shaped generations of students in economics and business and thus has contributed to deficient managerial and economic outcomes. Under the presumption that not only agents but also principals demonstrate opportunistic behavior, the economic definition of opportunism as established by Oliver Williamson is further developed. This contribution extends the concept of opportunism to principals. The principal’s illegitimate interference with the autonomy of the agent is discussed which shows that whilst agent opportunism largely rests on information asymmetry, principal opportunism feeds itself off power asymmetries. In an interdisciplinary effort and building on recent research in the area of bullying and mobbing, the economic rationale of principal opportunism is explained with the help of a simple game‐theoretic model. On this basis, it is demonstrated how a more balanced perception of principal agent relationships can contribute to an updated theory of the firm.

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Section: Principals and Agents In Interaction – An Opportunism Gamementioning

confidence: 99%

The Opportunistic Principal

Wagner

2019

Kyklos

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“…Previous research has considered the direct effects of FII equity ownership on firm performance and other outcomes (Chen, Firth, Gao, & Rui, ; He, Li, Shen, & Zhang, ; Luo, Chen, & Yan, ), but the empirical evidence has been far from conclusive, perhaps because FII equity ownership is typically small as it constrained by local regulations. But the FIIs potentially exert a much greater indirect influence on the governance of their target firms through their trading activities although, as with all informed investors, they are faced with conflicting pressures (Carleton, Nelson, & Weisbach, ; Chakravarty & Sarkar, ; Denes, Karpoff, & McWilliams, ; Gillan & Starks, ; Hartzell & Starks, ; Kyle, ; Song & Szewczyk, ).…”

Section: Theory and Hypothesis Developmentmentioning

confidence: 99%

Informed trading by foreign institutional investors as a constraint on tunneling: Evidence from China

Zhang

Yang

Strange

et al. 2017

Corporate Governance

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Manuscript Type: EmpiricalResearch Question/Issue: This paper investigates how the trading activities of foreign institutional investors (FIIs) affect the tunneling activities of controlling shareholders in an emerging economy (China).Research Findings/Insights: We use an unbalanced panel dataset of 167 FIIs with investments in Chinese real estate firms during the period 2003 to 2011, which gives us 1006 firm-year observations in total. We find strong support for our hypothesis of an inverted U-shaped relationship between FII trading turnover and the extent of tunneling by controlling shareholders.Theoretical/Academic Implications: In many emerging economies, the institutional environment for investor protection is weak. Powerful controlling shareholders may take the opportunity to extract private benefits via tunneling activities to the detriment of minority shareholders, and informed minority investors may also take advantage of less well-informed investors.There are thus multiple principal-principal agency conflicts. FIIs are a particularly important group of informed investors. On the one hand, large-scale aggressive trading by FIIs should drive stock prices to fundamentals, provide market discipline to management, and thus limit tunneling. On the other hand, FIIs may opt to exploit their private knowledge to gain trading profits at the expense of uninformed investors, and implicitly support tunneling. We highlight these potential effects, and demonstrate empirically an inverted U-shaped relationship between FII trading turnover and the extent of tunneling.Practitioner/Policy Implications: Tunneling is a serious issue, particularly in emerging economies where the institutional arrangements for minority investor protection are often weak.FII involvement may enhance market discipline, but may also exacerbate the problem, so policymakers need to guard against potential adverse effects. An ownership cap on FII shareholdings is unlikely to be effective, but policymakers might strengthen QFII license revocation policies and issue more licenses to promote competition among FIIs.

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“…These activities might begin with negotiating privately to withdraw managerial resolutions; pursuing the conflict through the media; filing shareholder proposals; proxy battles during the shareholders' General Assembly; taking legal action including class action suits; and, finally, exiting of contesting shareholders. After three decades of activity, the process of shareholder activism has undergone several transformations because of dynamic changes in companies' ownership structure (Denes et al, 2017) as well as the greater support of institutional investors to hedge fund activism (Carrothers, 2017). These developments were conducive to the emergence of the more professional hedge fund activism (Gillan and Starks, 2007).…”

Section: Introductionmentioning

confidence: 99%

Institutional Contradictions of the French state as Shareholder

Girard

Gates

2020

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Purpose This paper aims to demonstrate that state shareholders are confronted with contradictory logics leading to institutional contradictions that activist shareholders can exploit. The competing logics of the state as shareholder and their impact on corporate governance and shareholder activism offer fertile grounds for research advances in Coordinated Market Economies (CMEs). Design/methodology/approach Through an extensive literature review of state ownership, institutional contradictions and shareholder activism, this paper analyzes two case studies involving the French State as shareholder. Findings In the French context, these two cases illustrate how institutional contradictions result in opportunities for shareholder activism. By focusing on the institutional contradictions of the state shareholder, this investigation suggests a need for experimental research to observe how shareholder activists adapt to each institutional change in CMEs. This experimentation can help policymakers to avoid creating additional conditions that shareholder activists can exploit. Research limitations/implications This focuses only on France and its state shareholdings. To generalize results, studies of other CMEs and state shareholders are needed. Practical implications Policymakers should consider all legislative proposals for their potential to deviate from corporate governance practice by experimenting with them in a laboratory setting. Shareholder activists can compare state shareholders’ actions against the state’s legislation to emphasize institutional contradictions that counter minority shareholders’ rights. Originality/value This research is the first to analyze how the state as shareholder can exploit its competing logics to resist against shareholder activism and support management or to become itself a shareholder activist.

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Thirty Years of Shareholder Activism: A Survey of Empirical Research

Cited by 24 publications

References 136 publications

The Opportunistic Principal

The Opportunistic Principal

Informed trading by foreign institutional investors as a constraint on tunneling: Evidence from China

Institutional Contradictions of the French state as Shareholder

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