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Investor Activism: Reshaping the Playing Field?

Stephen M. Bainbridge

University of California, Los Angeles (UCLA) - School of Law

May, 2008

UCLA School of Law, Law-Econ Research Paper No. 08-12

Shareholders of U.S. corporations historically tended towards rational apathy. Holding small blocks that were unable to affect the outcome of the vote and faced with the considerable costs associated with gathering sufficient information to make an informed decision, they adopted the so-called Wall Street Rule (it was easier to switch than fight). In the last 15 years or so, a growing number of commentators and investor activists have claimed that the rising importance of institutional investors has the potential to reshape the field by empowering shareholders to become active players in corporate governance.

This paper situates investor activism in the so-called director primacy theory of corporate governance. In so doing, it demonstrates that the separation of ownership and control typical of U.S. public corporations has significant efficiency benefits. It then argues that shareholder activism threatens to undermine the advantages of director primacy without offering significant countervailing gains.

Accordingly, the paper concludes that pending regulatory proposals to expand shareholder governance rights should be viewed with suspicion.

Number of Pages in PDF File: 25

Keywords: institutional investors, shareholder activism, corporate governance, director primacy

JEL Classification: K22

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Date posted: May 12, 2008  

Suggested Citation

Bainbridge, Stephen M., Investor Activism: Reshaping the Playing Field? (May, 2008). UCLA School of Law, Law-Econ Research Paper No. 08-12. Available at SSRN: https://ssrn.com/abstract=1130969 or http://dx.doi.org/10.2139/ssrn.1130969

Contact Information

Stephen Mark Bainbridge (Contact Author)
University of California, Los Angeles (UCLA) - School of Law ( email )
385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States
310-206-1599 (Phone)
310-825-6023 (Fax)
HOME PAGE: http://www.professorbainbridge.com
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