Relationship Investing and Shareholder Activism by Institutional Investors: The Wealth Effects of Corporate Governance Related Proposals

Posted: 13 Sep 1999

See all articles by Stuart Gillan

Stuart Gillan

University of Georgia - Department of Finance

Laura T. Starks

University of Texas at Austin - Department of Finance

Abstract

We examine whether institutional investor activism by public pension funds is effective in achieving its stated goal of increasing shareholder value. An investigation of the short term performance indicates that there are significantly positive abnormal returns surrounding the targeting of firms for governance reform. In contrast, in an analysis of long term performance we find that the magnitude of the cumulated excess return varies depending on the specific benchmark portfolio employed. Moreover, we do not find any evidence of statistically significant positive returns. This leads us to question the effectiveness of this form of shareholder activism.

JEL Classification: G32

Suggested Citation

Gillan, Stuart L. and Starks, Laura T., Relationship Investing and Shareholder Activism by Institutional Investors: The Wealth Effects of Corporate Governance Related Proposals. Available at SSRN: https://ssrn.com/abstract=5837

Stuart L. Gillan (Contact Author)

University of Georgia - Department of Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States

Laura T. Starks

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-471-5899 (Phone)
512-471-5073 (Fax)

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