Standing on the Shoulders of Giants: The Effect of Passive Investors on Activism

70 Pages Posted: 1 Mar 2016 Last revised: 15 Jul 2018

See all articles by Ian Appel

Ian Appel

Boston College - Carroll School of Management

Todd A. Gormley

Washington University in St. Louis

Donald B. Keim

University of Pennsylvania - Wharton School

Multiple version iconThere are 2 versions of this paper

Date Written: June 30, 2018

Abstract

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

Appel, Ian and Gormley, Todd A. and Keim, Donald B., Standing on the Shoulders of Giants: The Effect of Passive Investors on Activism (June 30, 2018). Available at SSRN: https://ssrn.com/abstract=2693145 or http://dx.doi.org/10.2139/ssrn.2693145

Ian Appel

Boston College - Carroll School of Management ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

Todd A. Gormley (Contact Author)

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
(314) 935-7171 (Phone)

HOME PAGE: http://www.gormley.info

Donald B. Keim

University of Pennsylvania - Wharton School ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-898-7685 (Phone)
215-898-6200 (Fax)

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