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The Evolution of Shareholder Activism in the United States

Stuart Gillan

University of Georgia - Department of Finance

Laura T. Starks

University of Texas at Austin - Department of Finance


In the early 1900's American financial institutions were active participants in U.S. corporate governance but the enactment of securities laws in the 1930's limited the power of financial intermediaries and thus their governance role. The consequence of such laws and regulations was a progressive widening of the gap between ownership and control in large U.S. public companies. In 1942, SEC rule changes allowed shareholders to submit proposals for inclusion on corporate ballots. Since that time, shareholder activists have used the proxy process, and other approaches, to pressure corporate boards and managers for change. In particular, during the mid-1980s, the involvement of large institutional shareholders increased dramatically with the advent of public pension fund activism. At the heart of shareholder activism is the quest for value, yet the empirical evidence suggests that effects of such activism are mixed. We review the evidence on activism and, while some studies have found positive short-term market reactions to announcements of certain kinds of activism, there is little evidence of improvement in the long-term operating or stock-market performance of the targeted companies. A recent increase in hedge fund activism appears to be associated with dramatic corporate change, however, the research in this area is still somewhat nascent and the long-term effects are still unknown.

Number of Pages in PDF File: 51

Keywords: Corporate Governance, Shareholder Activism

JEL Classification: G30, G34

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Date posted: January 28, 2007  

Suggested Citation

Gillan, Stuart and Starks, Laura T., The Evolution of Shareholder Activism in the United States (2007). Available at SSRN: https://ssrn.com/abstract=959670 or http://dx.doi.org/10.2139/ssrn.959670

Contact Information

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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