When Activists Meet Controlling Shareholders in the Shadow of the Law: A Case Study of Hong Kong
14(1) Asian Journal of Comparative Law, Forthcoming
62 Pages Posted: 1 Oct 2018
Date Written: August 29, 2018
Shareholder activism has changed corporate governance around the world in the past decade. Conventional wisdom holds that shareholder activism is only effective in firms with dispersed ownership; there has been much less discussion on whether and how activism would work in firms with controlling shareholders. This paper fills this gap by investigating whether and how legal mechanisms influence the strategy setting and outcome of activism based on hand-collected data regarding activists’ initiatives against firms with concentrated ownership in Hong Kong from 2003 to 2017. This paper finds that cases utilizing formal legal mechanisms appear to have a higher success rate. Among all the legal tools available, minority veto rights are most commonly used in Hong Kong and are quite effective in leveraging activists’ position in controlled firms. Furthermore, the availability of legal remedies and the ownership level of controlling shareholders are factors that influence the strategy setting of activists. Most activist initiatives against controlled firms involve corporate governance disputes where activists can rely on legal protection to enhance their bargaining position. On the other hand, activists tend not to escalate their demands to the public and not to exercise legal rights when controlling shareholders control majority of the shares.
Keywords: Shareholder Activism, Controlling Shareholder, Minority Veto Rights
JEL Classification: K20, K22
Suggested Citation: Suggested Citation