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

Abstract

This study seeks to understand target firm specific antecedents of shareholder activism, and how the causal relationships vary depending on the governance environments in a multi-country setting, comprising three common law countries (USA, UK and Australia) and three civil law countries (Japan, Germany & South Korea). Our findings suggest that the antecedents of shareholder activism vary by the motivation of the activist. We identify 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.

Keywords: Corporate Governance, Shareholder Activism, Financial Activism, Social Activism