Soft Shareholder Activism
University of Pennsylvania - Finance Department
This paper studies the conditions under which voice and exit are effective forms of shareholder activism. Different from the existing literature, voice is interpreted as a strategic transmission of information from an activist investor to an opportunistic manager. The analysis provides several results. First, voice and exit exhibit complementarity. Second, managerial myopia enhances the effectiveness of voice. Third, transparency reduces the credibility of voice and thereby harms shareholder value. Forth, the value of the firm can decrease with the quality of the activist's private information and increase with the cost of obtaining this information. Finally, activists' short-termism increases the effectiveness of voice.
Number of Pages in PDF File: 54
Keywords: Shareholder Activism, Voice, Exit, Corporate Governance, Communication, Transparency, Cheap-Talk.
JEL Classification: D74, D82, D83, G34working papers series
Date posted: December 8, 2011 ; Last revised: January 22, 2013
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