Antecedents of Shareholder Activism in Target Firms: Evidence from a Multi‐Country Study

Abstract

Manuscript Type: EmpiricalResearch Question/Issue: This study seeks to better understand the antecedents of shareholder activism targeted at firms located in three common law countries (i.e., USA, UK, and Australia) and three civil law countries (Japan, Germany, and South Korea) during the 2003-07 time period. Research Findings/Insights: Our findings suggest that the antecedents of shareholder activism vary by the motivation of the activist. We demonstrate that activists target firms with two motives (a) to improve the financial performance, and (b) to improve the social performance of the firm. With respect to the target firm level antecedents, we find that firm size is unrelated to financial activism, but positively related to social activism; ownership concentration is negatively related to both financial and social activism; and prior profitability is negatively related to financial activism, but positively related to social activism. Further, these relationships in the case of financial activism are generally stronger in common law legal systems, whereas those in the case of social activism are generally stronger in environments with a greater level of income inequality. Theoretical/Academic Implications: Our findings suggest that future research should differentiate between the motivations of the activism event. Further, we find that while agency logic works well for financial activism, institutional theory provides stronger explanations for social activism. Overall, we demonstrate the complementary nature of these two theories in explaining shareholder activism. Practitioner/Policy Implications: We found that the "exposure" to shareholder activism varies by the motivation of the activist, and the nature of the firm and its national context. An understanding of these issues would help firms develop proper response strategies to activism events.

Demand for CSR: Insights from Shareholder Proposals

“…Furthermore, we also find a positive coefficient between ROA and number of proposals. This is not in line with the finding of financial shareholders' activism (Judge, Gaur, and Muller-Kahle 2010), which reports less profitable firms to be targeted by shareholders. This result is not surprising as it could be that CSR activism targets firms that are quite profitable and have the resources to invest in CSRrelated programs and projects.…”

Forms and Effects of Shareholder Activism

“…More specifically, they address the antecedents (e.g., Judge et al, 2010) and concrete effects of shareholder activists (e.g., Marler & Faugere, 2010), its regulatory framework (e.g., Hill, 2010) and specific forms of activism like coalition building (Renneboog, 2010), dissident proxy initiatives (Bates & Hennessy, 2010) and voting behavior in the general meeting on decisions in general (Poulsen et al, 2010) and board remuneration in particular (Conyon, 2010).…”

“…These seven papers stem from multiple disciplines, i.e., finance (e.g., Renneboog, 2010), law (Hill, 2010) and management (e.g., Judge, Gaur, & Muller-Kahle, 2010), and employ multiple theoretical perspectives that include agency theory (e.g., Marler & Faugere, 2010), institutional theory (e.g., Bates & Hennessy, 2010), political game theory (Poulsen, Rose, Strand, & Thomsen, 2010), comparative law (Hill, 2010), and combinations thereof (e.g., Judge et al, 2010). With one exception (i.e., Hill, 2010), all papers can be characterized as deductive empirical studies.…”

Shareholder Activism in Malaysia: Is it Effective?

“…Broadly speaking, the term shareholder activism can be defined as the use of ownership position to actively influence company policy and practice (Judge, Gaur, & Muller-Kahle, 2010;Sjöström, 2008). In order to ensure that firm policy practice is translated into corporate performance, shareholders need to make this goal a reality, according to Starks (1998) andSmith (1996).…”

“…For the same purpose, one possible way to move around the "chairs of the table" is through shareholder activism. Judge, Gaur, & Muller-Kahle (2010) studied the antecedents of shareholder activism in a few targeted firms in the United States, the United Kingdom, Australia, Germany, Japan and South Korea. It was identified that there are two main motives for shareholder activism, i.e., (1) to improve financial performance, and (2) to improve the social performance of the firm.…”