Research Question/Issue: This study examines activism campaigns where multiple activists simultaneously target the same firm-which we term clustered shareholder activism. Despite the growing influence of shareholder activism on corporate governance, the clustered activism phenomenon has previously only been addressed indirectly, anecdotally, or with limited data. We consider cost sharing motives for clustered activism and whether the phenomenon exerts a positive or negative impact on the performance of the target firm.Research Findings/Insights: Using a large dataset of shareholder activism events at U.S. firms, we find that clustered activism campaigns are more common at larger firms and among geographically proximate activists, which is consistent with our prediction that activists cluster to reduce the costs associated with activism campaigns. Furthermore, we find that clustered activism produces elevated profitability and abnormal returns, which is consistent with our prediction that activists cluster to address principal-agency costs.Theoretical/Academic Implications: Our study provides some of the first theoretical and empirical evidence on the clustered activism phenomenon. We contribute to the understanding of the role of shareholder activism by considering their effect on principal-agency and principal-principal problems. Our results also contribute to the literature that examines factors relating to the success of shareholder activism by documenting the effect of clustered activism on activism costs and target firm performance.Practitioner/Policy Implications: Our study adds to the debate among practitioners and regulators on the merits (or lack thereof) of clustered activism. Our findings suggest that a regulatory approach that encourages clustered activism can benefit shareholders. Video Abstract: https
We study financial reporting and corporate governance in 216 U.S. companies accused of price fixing by antitrust authorities. We document a range of strategies used by these firms when reporting financial results, including frequent earnings smoothing, segment reclassification, and restatements. In corporate governance, cartel firms favor outside directors who are likely to be inattentive monitors due to their status as foreign or "busy." When directors resign, they are often not replaced, and new auditors are rarely engaged. Cartel managers exercise their stock options faster than managers of other firms. While our results are based only upon firms engaged in price fixing, we expect that they should apply generally to all companies in which managers seek to conceal poor performance or personal wrongdoing. JEL Classification: D43, G34, L40Keywords: Cartels, price fixing, accounting fraud, boards of directors, corporate governance. _____________________________We are grateful to Paul Gilgen for helpful comments and suggestions, to John Connor for generously providing his extensive dataset of worldwide cartels, and to Ronald Masulis for generously providing his dataset of foreign independent directors. # Corresponding author. Address: Swiss Institute of Banking and Finance, University of St. Gallen, Rosenbergstrasse 52, CH-9000 St. Gallen, Switzerland,. E-mail addresses: tanja.artigagonzalez@unisg.ch, markus.schmid@unisg.ch, and dyermack@stern.nyu.edu. 2 Smokescreen:How managers behave when they have something to hide IntroductionIn most financial frauds, a company tries to make its performance appear better than it really is, hoping to achieve a valuation that wouldn't be supported by its true cash flows. This paper looks at the opposite case. We investigate the disclosure and governance practices of more than 200 U.S. companies accused by government authorities of participating in pricefixing cartels. These firms earn strong cash flows, and continuation of their schemes requires obfuscation of the windfalls from regulators, analysts, customers, and at times, even their own boards of directors.Connor and Helmers (2007) define a cartel as "an association of legally independent firms that aims to raise their joint profits through explicit agreements. Hard-core cartels aim to control prices or restrict supply (or both)." Decisions to join cartels are typically taken by a firm's very top managers and then implemented by the intermediate management (Harrington, 2006). The role of top management suggests that corporate governance may affect formation and continuation of a cartel. For example, cartels may occur more readily in firms with a high concentration of power at the top level, a weak or inattentive board of directors, or strong pay-3 for-performance incentives (Spagnolo, 2005). 1 In addition, financial reporting strategies that cause signal-jamming, such as earnings smoothing and suspicious accrual patterns, might be expected to occur frequently with cartels. Cartelists have an ongoing need to deter bot...
We study the effects of cartel participation on top corporate managers. Although a strong public interest exists in regulating price fixing, we find little evidence that either corporate governance or the legal system holds managers of cartel firms accountable. Instead, managers of cartel firms enjoy greater job security, receive higher cash bonuses, and extract more ex post compensation through timely exercise of stock options. Legal sanctions against individual managers are infrequent, with enforcement actions focused on corporations rather than their officers. Managers appear to use concealment strategies actively to limit detection of cartel membership by their boards and auditors.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.
customersupport@researchsolutions.com
10624 S. Eastern Ave., Ste. A-614
Henderson, NV 89052, USA
Copyright © 2024 scite LLC. All rights reserved.
Made with 💙 for researchers
Part of the Research Solutions Family.