Working Paper: NBER ID: w22707
Authors: Ian R. Appel; Todd A. Gormley; Donald B. Keim
Abstract: 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.
Keywords: passive investors; activism; corporate governance; proxy fights; board representation
JEL Codes: D22; G23; G30; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Passive Ownership (G32) | Campaigns Seeking Board Representation (K16) |
| Passive Ownership (G32) | Confrontational Tactics (Proxy Fights) (G34) |
| Passive Ownership (G32) | Success in Obtaining Board Representation (G34) |
| Passive Ownership (G32) | Activists' Success in Short-term Goals (D72) |