Socially and privately optimal shareholder activism
AbstractThis paper aims to evaluate the private and social gains of shareholder activism in an optimal contracting framework involving dispersed shareholders who may become active. The social gains are based on the welfare to stake holders in the firm, whereas the private gains are based on shareholder wealth only. Active shareholders influence the contracting game with the CEO, and therefore also the size and the distribution of the surplus to be split between the shareholders and the CEO. Although the model is very simple and focussing on the creation and distribution of welfare between the shareholders and the CEO, we nonetheless identify surprising divergence between the private and social profitability of shareholder activism. Shareholder activism that is privately profitable is not necessarily socially profitable. The distributional effects of shareholder activism may dominate the efficiency effects to make shareholder activism a negative social NPV project. Copyright Springer Science+Business Media, LLC 2007
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Bibliographic InfoArticle provided by Springer in its journal Journal of Management & Governance.
Volume (Year): 11 (2007)
Issue (Month): 1 (March)
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Web page: http://www.springerlink.com/link.asp?id=102940
Corporate governance; Dismissal; Executive pay; Shareholder activism; G32; J33; J41;
Find related papers by JEL classification:
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
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