48 Pages Posted: 8 Dec 2011 Last revised: 1 Jun 2017
Date Written: May 31, 2017
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 in the best interest of the firm. In this framework, I show that voice (launching a public campaign) and exit (selling shares) enhance the ability of activists to govern through communication. The analysis identifies the factors that contribute to successful dialogues between investors and firms. It also shows that public communications are likely to be ineffective, justifying the prevalence of behind-the-scenes communications.
Keywords: Cheap-Talk, Communication, Corporate Governance, Exit, Shareholder Activism, Voice
JEL Classification: D82, D83, G23, G32, G34
Suggested Citation: Suggested Citation