Standing on the Shoulders of Giants: The Effect of Passive Investors on Activism
NBER Working Paper No. 22707
We analyze whether the growing importance of passive investors has influenced the campaigns, tactics, and successes of activists. We find activists are more likely to pursue changes to corporate control or influence (e.g., via board representation) and to forego more incremental changes to corporate policies when a larger share of the target company’s stock is held by passively managed mutual funds. Furthermore, higher passive ownership is associated with increased use of proxy fights and a higher likelihood the activist obtains board representation or the sale of the targeted company. Overall, our findings suggest that the increasingly large ownership stakes of passive institutional investors mitigate free-rider problems associated with certain forms of intervention and ultimately increase the likelihood of success by activists.
Document Object Identifier (DOI): 10.3386/w22707
Published: Ian R Appel & Todd A Gormley & Donald B Keim, 2019. "Standing on the Shoulders of Giants: The Effect of Passive Investors on Activism," The Review of Financial Studies, vol 32(7), pages 2720-2774.
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