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

55 Pages Posted: 3 Oct 2016

See all articles by Ian Appel

Ian Appel

Boston College - Carroll School of Management

Todd A. Gormley

Washington University in St. Louis; European Corporate Governance Institute (ECGI)

Donald B. Keim

University of Pennsylvania - Wharton School

Multiple version iconThere are 2 versions of this paper

Date Written: September 2016

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 pursue changes to corporate control or influence (e.g., via board representation) and to forego more incremental changes to corporate policies 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 and a higher likelihood the activist obtains board representation or the sale of the targeted company. Overall, our findings suggest that the increasingly large ownership stakes of passive institutional investors mitigate free-rider problems associated with certain forms of intervention and ultimately increase the likelihood of success by activists.

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 (September 2016). NBER Working Paper No. w22707, Available at SSRN: https://ssrn.com/abstract=2846944

Ian Appel (Contact Author)

Boston College - Carroll School of Management ( email )

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

Todd A. Gormley

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

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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1000 Brussels
Belgium

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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