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

16 Pages Posted: 26 Jul 2010

See all articles by William Q. Judge

William Q. Judge

Old Dominion University

Ajai Gaur

Rutgers Business School - Newark and New Brunswick

Maureen I. Muller-Kahle

The Pennsylvania State University

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Abstract

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.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.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.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.Empirical 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. 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. 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. 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.

Suggested Citation

Judge, William Q. and Gaur, Ajai S. and Muller-Kahle, Maureen I., Antecedents of Shareholder Activism in Target Firms: Evidence from a Multi-Country Study. Corporate Governance: An International Review, Vol. 18, Issue 4, pp. 258-273, July 2010, Available at SSRN: https://ssrn.com/abstract=1647229 or http://dx.doi.org/10.1111/j.1467-8683.2010.00797.x

William Q. Judge

Old Dominion University ( email )

Norfolk, VA 23529-0222
United States
7576836730 (Phone)

Ajai S. Gaur

Rutgers Business School - Newark and New Brunswick ( email )

Newark, NJ
United States

Maureen I. Muller-Kahle

The Pennsylvania State University ( email )

PA
United States

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