Importing Activists: Determinants and Consequences of Increased Cross-border Shareholder Activism

Abstract

We use a comprehensive sample of over 7,000 shareholder activism campaigns across 55 countries to examine how corporate governance regulations interact with activism to drive meaningful change in real corporate sector outcomes. We develop a country-level framework of regulatory characteristics that serve as necessary precursors for minority shareholders to influence firm governance, and find that the incidence of both foreign and domestic activism in a given country, as measured by the number of campaigns, increases by more than 80% following reforms that increase shareholder voting rights and board independence. Using these shareholder-empowering changes to governance regulation as shocks that increase the threat of activism, and the presence of independent institutional investors to identify high-activism-risk firms, we find that firms facing a high threat of activism reduce investment and increase payouts. We also find similar effects for firms not directly targeted by activists, suggesting that firms make significant preemptive changes to avoid being targeted. Overall, our results suggest that activists serve as necessary catalysts for corporate governance reforms to effect real change in corporate policies and practices, and that there are widespread spillover effects on firms not explicitly targeted by activists.

Keywords: Shareholder Activism, Corporate Governance, Regulation, Real Effects

JEL Classification: F55, G38, K22, M48