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Less Is More: Making Shareholder Activism A Valued Mechanism Of Corporate Governance


  • Roberta Romano


Institutional investors have increasingly engaged in corporate governance activities, introducing proxy proposals and negotiating with management, with a goal of improving corporate performance. As shareholder activism has increased, financial economists have sought to measure its effect on performance. This paper reviews the corporate finance literature on institutional investors' activities in corporate governance and also empirically investigates the effect of confidential voting proposals on voting outcomes. It then uses the findings of the empirical literature to inform normative recommendations for the proxy process. In brief, there is an apparent paradox: Notwithstanding the development of shareholder activism and commentators' generally positive assessments of it, the empirical research indicates that such activism has little or no effect on targeted firms' performance. This implies that activist institutions ought to reassess their agenda, in order to use their resources more effectively. The paper takes a two-pronged approach to furthering this aim. First, it suggests a mechanism of internal control, whereby funds would engage in periodic review of their shareholder-activism programs to identify the most fruitful governance objectives. Second, it seeks to provide incentives to undertake such internal revaluations by advocating elimination or significant reduction of the subsidy of proposal sponsorshi

Suggested Citation

  • Roberta Romano, 2000. "Less Is More: Making Shareholder Activism A Valued Mechanism Of Corporate Governance," Yale School of Management Working Papers ysm140, Yale School of Management, revised 01 Nov 2001.
  • Handle: RePEc:ysm:somwrk:ysm140

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    Cited by:

    1. Sergakis Konstantinos, 2015. "Deconstruction and Reconstruction of the “Comply or Explain” Principle in EU Capital Markets," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 5(3), pages 233-288, November.
    2. Nicole Boyson & Robert Mooradian, 2011. "Corporate governance and hedge fund activism," Review of Derivatives Research, Springer, vol. 14(2), pages 169-204, July.
    3. Erenburg, Grigori & Smith, Janet Kiholm & Smith, Richard, 2016. "Which institutional investors matter for firm survival and performance?," The North American Journal of Economics and Finance, Elsevier, vol. 37(C), pages 348-373.
    4. repec:fau:fauart:v:68:y:2018:i:1:p:34-70 is not listed on IDEAS
    5. Roman, Raluca, 2015. "Shareholder activism in banking," Research Working Paper RWP 15-9, Federal Reserve Bank of Kansas City.
    6. Pursey P. M. A. R. Heugens & J. A. (Jordan) Otten, 2007. "Beyond the Dichotomous Worlds Hypothesis: towards a plurality of corporate governance logics," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(6), pages 1288-1300, November.
    7. Del Guercio, Diane & Seery, Laura & Woidtke, Tracie, 2008. "Do boards pay attention when institutional investor activists "just vote no"?," Journal of Financial Economics, Elsevier, vol. 90(1), pages 84-103, October.
    8. Lee, Dong Wook & Park, Kyung Suh, 2009. "Does institutional activism increase shareholder wealth? Evidence from spillovers on non-target companies," Journal of Corporate Finance, Elsevier, vol. 15(4), pages 488-504, September.
    9. Jackowicz, Krzysztof & Kowalewski, Oskar, 2012. "Crisis, internal governance mechanisms and pension fund performance: Evidence from Poland," Emerging Markets Review, Elsevier, vol. 13(4), pages 493-515.
    10. Gavin Nicholson & Zoie Cook, 2009. "The Paradox of Transparency, Short-Termism and the Institutionalisation of Australian Capital Markets," Australian Accounting Review, CPA Australia, vol. 19(4), pages 303-313, December.
    11. Grigori Erenburg & Janet Kiholm Smith & Richard Smith, 2015. "Does Institutional Ownership Promote the Transformation of Underperforming Firms?," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 5(04), pages 1-40, December.

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