Standing on the Shoulders of Giants: The Effect of Passive Investors on Activism
70 Pages Posted: 1 Mar 2016 Last revised: 15 Jul 2018
Date Written: June 30, 2018
We analyze whether the growing importance of passive investors has influenced the campaigns, tactics, and successes of activists. We find activists are more likely to seek board representation when a larger share of the target company's stock is held by passively managed mutual funds. Furthermore, higher passive ownership is associated with increased use of proxy fights, settlements, and a higher likelihood the activist achieves board representation or the sale of the targeted company. Our findings suggest that the recent growth of passive institutional investors mitigates free-rider problems and facilitates activists' ability to engage in costly, value-enhancing forms of monitoring.
Keywords: activism, passive funds, corporate control, proxy fights
JEL Classification: D22, G23, G30, G34
Suggested Citation: Suggested Citation