Soft Shareholder Activism

47 Pages Posted: 8 Dec 2011 Last revised: 11 Aug 2020

See all articles by Doron Levit

Doron Levit

University of Washington, Foster School of Business; European Corporate Governance Institute (ECGI)

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Date Written: September 10, 2018

Abstract

This paper studies communications between investors and firms as a form of corporate governance. The main premise is that activist investors cannot force their ideas on companies; they must persuade the board or other shareholders that implementing these ideas is beneficial to the firm. I show that the threat of voice (launching a public campaign) facilitates communication, while the option to exit facilitates communication if and only if the proposal is risky relative to the status quo or voice is ineffective as a governance mechanism. The analysis identifies the factors that contribute to successful dialogues between investors and firms.

Keywords: Cheap-Talk, Communication, Corporate Governance, Exit, Shareholder Activism, Voice

JEL Classification: D82, D83, G23, G32, G34

Suggested Citation

Levit, Doron, Soft Shareholder Activism (September 10, 2018). Review of Financial Studies, Forthcoming, Jacobs Levy Equity Management Center for Quantitative Financial Research Paper, Available at SSRN: https://ssrn.com/abstract=1969475 or http://dx.doi.org/10.2139/ssrn.1969475

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