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Shareholder activism with strategic investors

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  • Danis, András

Abstract

Admati et al. (1994, Journal of Political Economy) predict that activist shareholders sell most of their shares to passive investors, which destroys the activist’s incentive to engage in value-enhancing monitoring. I extend their theoretical framework by assuming a finite number of passive investors instead of a continuum. In my model, passive investors take into account the effect of their own demand for shares on the activist’s incentives. As a result, they buy fewer shares from him, which increases his monitoring intensity. This is important because empirically, we observe activist investors with large blocks of shares.

Suggested Citation

  • Danis, András, 2020. "Shareholder activism with strategic investors," Finance Research Letters, Elsevier, vol. 33(C).
    • Handle: RePEc:eee:finlet:v:33:y:2020:i:c:s1544612319302442
    DOI: 10.1016/j.frl.2019.06.007
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    References listed on IDEAS

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    More about this item

    Keywords

    Shareholder; Activism; Activist; Hedge fund;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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