Shareholders’ Activism and Firm Performance: A Review of Literature

Bhimavarapu

et al. 2022

JRFM

The paper’s prime objective is to understand the impact of Shareholder activism on firm performance. This study is conducted in a unique setup where traditional activist investors such as pension funds and hedge funds are not present. However, the activism cases are increasing yearly in an emerging economy like India. We have created a comprehensive shareholder activism index (sha index) using multiple activisms and corporate governance factors. To measure firm performance, we have used valuation (Tobin’s Q and Market capitalization), profitability (operating profit margin and net profit margin), and return ratios (Return on capital and return on equity). Panel data analysis (PDA) is employed for the current study as it overcomes the shortcomings of the time series analysis and cross-sectional studies. The sample comprises 37 listed firms’ data for FY2017 to FY2020. Chosen firms have experienced activism instances at least once during the 2017–2020 period. As per our analysis, shareholder activism has a significant negative impact on valuation measured in market capitalization and profitability estimated by operating profit margin. Activism primarily impacts the other four parameters negatively, but it is insignificant. India is in the nascent stage of activism, partly explaining the insignificance of the effects of shareholder activism on firm performance. Also, activist investors are targeting companies. These attacks are not fructifying desired outcomes as promoters own over 50% stake in the listed companies. The latest data for FY2021 has not been considered for the study as covid-19 impacted the businesses during the financial year. Also, we cannot capture activism instances that are not reported in regulatory filings. Unlike past research in this area, we have used a comprehensive activism index as a proxy of activism and have employed PDA instead of event studies to assess the impact on firm performance. Also, this is the first such empirical study conducted in an emerging economy setup where neither large hedge nor pension funds are present.

Section: Introductionmentioning

confidence: 99%

Shareholder Activism and Its Impact on Profitability, Return, and Valuation of the Firms in India

Shingade

Bhimavarapu

et al. 2022

JRFM

“…However, this study proposes a delicate balance among the three that will enable banks to face all types of turmoil including the crisis in the stock markets, which may be another parameter of the performance of a bank (Rastogi, 2013; Rastogi & Srivastava, 2011). Shareholders may also have their concerns not only from the activism point of view but also for their own return even in the form of dividends (Pinto et al, 2019; Pinto & Rastogi, 2019; Shingade & Rastogi, 2019).…”

Section: Introductionmentioning

confidence: 99%

Banks in India: A Balancing Act Between Profitability, Regulation and NPA

Kanoujiya

Bhimavarapu

Vision: The Journal of Business Perspective

2021

Banks are facing varied issues worldwide. The existing set of performance measures of banks lack a cohesive and concerted approach for adequate fulfilment of the purpose. This study proposes a holistic view of the bank performance, which includes profitability, risk-taking (non-performing asset [NPA]), and regulation. It has been observed that Indian banks fare miserably in this litmus test of comprehensive performance measure. The meanest of the expectation that NPA should be affected by the regulatory mechanism is found surprisingly missing in the Indian banks. The existing literature has not taken a holistic view of bank performance, and therefore, the findings of this study provide enough impetus to all the stakeholders of the banks to respond. Policy makers and regulatory bodies can redirect both the banking governance and regulation so that the basic tenet of comprehensive bank performance expectations, as raised in this study, are met reasonably.

“…Earlier in India, separation of ownership with management was missing, attempts to hostile takeover were less, and institutional investors were either not united or not active as shareholders (Sridhar, 2016). SA in India is still in its early stages (Shingade & Rastogi, 2019; Shingade et al, 2020). A lot has been changed gradually regarding SA due to (a) changes in the regulation and legislation concerning SHA, (b) succession issues become rampant, balance sheets are over-levered, and (c) international investors become part of the shareholders of the Indian firms (Sarkar & Sarkar, 2000; Varottil, 2012).…”

Section: Theoretical Framework Literature Review and Hypotheses Formu...mentioning

confidence: 99%

Impact of Shareholders’ Activism on the Performance of Banks in India: A Panel Data Application

Business Perspectives and Research

Singh

Kanoujiya

2023

There is a widespread uncertainty regarding the usefulness of shareholder activism (SA) as a part of corporate governance for firms and banks. SA has wide acceptance across the board among all the stakeholders’ participation. Since banks are the backbone of any economy, any endeavor (support to SA) creating difficulty may boomerang. Such actions do more harm than good; therefore, it is imperative to determine whether SA is beneficial to the banks or not. In this study, the SA index is built for Indian banks. The data relating to bank performance and valuation is gathered for 2016–2019. Panel data econometrics is applied to determine the impact of SA on banks performance. Results reveal that SA impacts bank performance. Furthermore, transparency and disclosure significantly moderates the association of SA with the performance. However, SA is not impacting bank valuation. It is a unique study of its kind to provide insights on SA for the banking sector.