Incentives To Corporate Governance Activism

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Incentives To Corporate Governance Activism

Author Info

Leech, Dennis (Department of Economics, University of Warwick)

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Dennis Leech

Abstract

This paper considers the incentives faced by investors (financial institutions) to become actively involved in the direction of their under-performing portfolio companies as proposed by recent policy reports on corporate governance. It proposes a metric by which to measure the returns to activism in terms of the size of holding, measures of risk and return to the company, the degree of under performance and the level of commission received by fiduciary fund managers. By comparing this with costs of activism it proposes a method by which 'significant shareholdings' may be estimated. A significant shareholding is the level above which a shareholding in a company may be said to have private incentives to activism. This approach is applied to two groups of companies listed on the London Stock Exchange, the top 250 and a ten percent random sample. The results indicate that there are very strong incentives for shareholders to be activist participants in corporate governance among the top 250 companies while there is much more diversity among the smaller companies. Results differ considerably between those where the shareholder is an own-account investor and a fund manager.

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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 632.

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Length: 34 pages
Date of creation: 2002
Date of revision:
Handle: RePEc:wrk:warwec:632

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Paper
- Leech, Dennis, 2003. "Incentives to Corporate Governance Activism," Royal Economic Society Annual Conference 2003 133, Royal Economic Society. [Downloadable!]

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Leech, Dennis, 1987. "Ownership Concentration and the Theory of the Firm: A Simple-Game-Theoretic Approach," Journal of Industrial Economics, Blackwell Publishing, vol. 35(3), pages 225-40, March. [Downloadable!] (restricted)
Tirole, Jean, 2001. "Corporate Governance," Econometrica, Econometric Society, vol. 69(1), pages 1-35, January.
Other versions:
- Tiroley, Jean, 2000. "Corporate Governance," CEI Working Paper Series 2000-1, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
- Tirole, Jean, 1999. "Corporate Governance," CEPR Discussion Papers 2086, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-83, June. [Downloadable!] (restricted)
Other versions:
- Andrei Shleifer & Robert W. Vishny, 1995. "A Survey of Corporate Governance," Harvard Institute of Economic Research Working Papers 1741, Harvard - Institute of Economic Research.
- Andrei Shleifer & Robert W. Vishny, 1996. "A Survey of Corporate Governance," NBER Working Papers 5554, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Leech, Dennis & Leahy, John, 1991. "Ownership Structure, Control Type Classifications and the Performance of Large British Companies," Economic Journal, Royal Economic Society, vol. 101(409), pages 1418-37, November. [Downloadable!] (restricted)
Other versions:
- Leech, D. & Leahy, J., 1989. "Ownership Structure, Control Type Classifications And The Performance Of Large British Companies," The Warwick Economics Research Paper Series (TWERPS) 345, University of Warwick, Department of Economics.

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