Collective Action and Governance Activism

Review of Finance, forthcoming

49 Pages Posted: 26 Jul 2015 Last revised: 7 May 2019

See all articles by Craig Doidge

Craig Doidge

University of Toronto - Rotman School of Management

I. J. Alexander Dyck

University of Toronto - Rotman School of Management

Hamed Mahmudi

University of Delaware - Department of Finance

Aazam Virani

University of Arizona - Department of Finance

Date Written: May 1, 2019

Abstract

We examine how an investor collective action organization (ICAO) enhances activism by institutional investors. The ICAO initiated a new form of engagement—private meetings with independent directors to discuss governance proposals. Compared to a single investor acting alone, the ICAO has stronger incentives to engage in activism. Its dollar holdings and voting power are six times larger and predict direct access to the board and the firms it engages. Firms engaged by the ICAO are at least 58% more likely than non-engaged firms to adopt the ICAO’s governance proposals that include adoption of majority voting, say-on-pay, and specific compensation policies. Engaged firms also increase CEO incentive pay. An event study around the announcement of the ICAO’s formation shows a positive impact on value that increases in both dollar holdings and voting power. We conclude that institutional investors improve governance outcomes through collective action.

Keywords: Collective action, Corporate governance, Institutional investor activism

JEL Classification: G34, G23

Suggested Citation

Doidge, Craig and Dyck, I.J. Alexander and Mahmudi, Hamed and Virani, Aazam, Collective Action and Governance Activism (May 1, 2019). Review of Finance, forthcoming. Available at SSRN: https://ssrn.com/abstract=2635662 or http://dx.doi.org/10.2139/ssrn.2635662

Craig Doidge (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6
Canada
416-946-8598 (Phone)

HOME PAGE: http://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Doidge

I.J. Alexander Dyck

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S 3E6
Canada
416-946-0819 (Phone)

Hamed Mahmudi

University of Delaware - Department of Finance ( email )

Alfred Lerner College of Business and Economics
Newark, DE 19716
United States

Aazam Virani

University of Arizona - Department of Finance ( email )

McClelland Hall
Tucson, AZ 85721-0108
United States

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