Institutional Shareholder Activism and Limited Investor Attention

31 Pages Posted: 7 Sep 2010

See all articles by Pornanong Budsaratragoon

Pornanong Budsaratragoon

Chulalongkorn University - Faculty of Commerce and Accountancy

Suntharee Lhaopadchan

Kasetsart University - Faculty of Management Sciences

David Hillier

University of Strathclyde - Department of Accounting and Finance

Date Written: August 30, 2010

Abstract

We investigate whether limited investor attention is a factor in the effectiveness of institutional shareholder activism. Prior research has shown that an inability of market participants to allocate sufficient intellectual effort to the investment decision can have an impact on market price and volume behavior. We extend this research in an applied setting by considering the effectiveness of the California Public Employees’ Retirement System (CalPERS) focus list, whose aim is to improve the performance and corporate governance of target firms. We find that the share price and volume response to being included in the focus list is a function of the investor attention in a stock, which in turn has an impact on the subsequent managerial response. This suggests that when attention is a scarce cognitive resource, the proactive exploitation of news signals can be an efficient activism strategy.

Keywords: Shareholder Activism, Limited Attention, Behavioral Finance, CalPERS

JEL Classification: G14, G20, G23

Suggested Citation

Budsaratragoon, Pornanong and Lhaopadchan, Suntharee and Hillier, David, Institutional Shareholder Activism and Limited Investor Attention (August 30, 2010). Available at SSRN: https://ssrn.com/abstract=1671868 or http://dx.doi.org/10.2139/ssrn.1671868

Pornanong Budsaratragoon

Chulalongkorn University - Faculty of Commerce and Accountancy ( email )

Bangkok, 10330
Thailand

Suntharee Lhaopadchan (Contact Author)

Kasetsart University - Faculty of Management Sciences ( email )

199 Sukhumvit Road
Thungsukhla
Siracha, Chonburi 20230
Thailand

David Hillier

University of Strathclyde - Department of Accounting and Finance ( email )

Curran Building
100 Cathedral Street
Glasgow G4 0LN
United Kingdom
44 0141 330 4809 (Phone)
44 0141 330 4442 (Fax)

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