Standing on the Shoulders of Giants: The Effect of Passive Investors on Activism
Boston College - Carroll School of Management
Washington University in St. Louis
University of Pennsylvania - Wharton School
March 15, 2016
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 (e.g., via shareholder proposals) 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 hostile, expensive tactics (e.g., 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.
Number of Pages in PDF File: 48
Keywords: activism, passive funds, corporate control, proxy fights
JEL Classification: D22 G23, G30, G34, G35
