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Article
Publication date: 24 October 2021

Irina Berezinets and Yulia Ilina

This paper aims to deal with the issue of shareholder activism of private equity investors in public companies. The study identifies characteristics of target firms and…

Abstract

Purpose

This paper aims to deal with the issue of shareholder activism of private equity investors in public companies. The study identifies characteristics of target firms and investors related to the likelihood of private equity activism. The research also examines whether shareholder activism strategy of private equity investors is associated with the better performance in future and value creation of target firms.

Design/methodology/approach

The paper applies econometric modeling to hand-collected data on private equity investments in listed companies, in the form of private investment in public equity and open-market share purchases, from eight Continental Europe’s countries for the period 2005–2014.

Findings

The findings indicate that the probability of shareholder activism is higher if the target firm’s industry corresponds to the private equity investor’s industry specialization, if the private equity firm is older, if the target is larger and the average ownership share purchased by the investor is higher. Conversely, the probability of shareholder activism is lower where a private equity firm invests in the target for the first time. A target firm with an activist investor has poorer operational performance results one year following the investment compared to a target firm with a passive private equity investor.

Research limitations/implications

Results from the analysis of transactions in Continental Europe countries with French and German legal origin may be not generalizable to other markets with the different legal tradition and institutional environment.

Originality/value

This research provides new empirical evidence on private equity activism in listed companies of Continental Europe. By distinguishing between active and passive investments, testing rarely considered characteristics to provide valuable insights and analyzing the effect of activism on the target firm’s performance, the study contributes variously to the still-limited body of literature on private equity activism in public companies with a governance structure based on concentrated ownership. The findings emphasize the relationship between shareholder activism and both target and investor’s characteristics from perspective of mitigating agency problem and value creation in target firms. By simultaneously investigating investments in public companies from several European markets, the study complements empirical evidence mostly obtained from studies of a single national market.

Details

Studies in Economics and Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1086-7376

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Book part
Publication date: 25 September 2020

Yeşim Şendur

Introduction:Shareholder activism comprises a range of activities by public companies’ shareholders who desire some change in the corporation and intervene in the…

Abstract

Introduction:Shareholder activism comprises a range of activities by public companies’ shareholders who desire some change in the corporation and intervene in the management’s decisions. The goals of activists are various. They may seek to change the company’s strategy, financial structure, management, or board in general. More specifically they may seek to change the capital allocation strategy (stock buybacks, dividends, or company’s acquisitions policies), the board composition, the company’s executive compensation plans, or the company’s certain functions (risk management, audit).

Purpose:The purpose of this literature review research study is to explore the concept of shareholder activism. According to a point of view, these activist actions stimulate better corporate governance practice in the companies and ultimately lead to an increase in the company’s stock price in the short term. The others claim that activism increases the company’s share price volatility in the long term. In the near future, the impact of shareholder activism will continue to rise and the ways how the companies respond to it is gaining importance. This study sheds light on the types of shareholder activism, when they are likely to approach a company and which tactics they most likely use.

Methodology:Considering the rapid expansion of shareholder activism concept in the world the author makes a review of literature on shareholder activism. The structure of this chapter is as follows. First, the characteristics of shareholder activism are introduced. Second, the theoretical background of this concept is given in detail. Third, the types of shareholder activism are discussed. Finally, the conclusion comprises a summary of shareholder activism.

Findings:The study finds out that shareholder activism has started to have a significant influence on corporate governance policy that a firm adopts in recent years. Shareholder activism increases levels of shareholder engagement in firm decisions and fosters a long-term corporate governance culture. As institutional investors get a higher portion from global equity investments, their role in shareholder activism will increase. There are opinions suggesting that investor activism will lead to better corporate governance practices in firms, leading to an increase in firm share prices in the short term. The shareholder activism phenomenon seems to be on the agenda of all companies in the near future.

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Article
Publication date: 15 June 2020

Souha Siala Bouaziz, Ines Ben Amar Fakhfakh and Anis Jarboui

The purpose of this study is to investigate the impact of the relationship between shareholder activism and earnings management on the market performance of French companies.

Abstract

Purpose

The purpose of this study is to investigate the impact of the relationship between shareholder activism and earnings management on the market performance of French companies.

Design/methodology/approach

This study used 385 firm-year observations drawn from a sample of French companies belonging to the SBF 120 index from 2008 to 2012. Data was collected from annual reports of sample companies. To measure earnings management, this study used the model of Raman and Shahrur (2008). The relationship between shareholder activism, earnings management and market performance using the panel data regression model was empirically examined.

Findings

The results prove that shareholder activism, as indicated by shareholder proposals, has no impact on market performance. However, the existence of shareholder activism affects the market performance positively. In fact, a minimum of proposals proves that shareholder activism plays an appropriate and effective role in creating value. Thus, several activists would resort to “a private activism” which could be the best and the least expensive form. This form of activism is called “behind the scenes.” Findings also show that earnings management has a negative impact on market performance. As a matter of fact, these findings allow to conclude that the firm performance decreases whenever managers undertake to earnings management. Also, earnings management behavior is mainly opportunistic. Finally, the relationship between shareholder activism and earnings management has no impact on market performance. This result reveals that shareholder activism proves to be an ineffective mechanism that does not alter the accounting choices, particularly in relation to earnings management. This result shows the inability of active shareholders to define and implement strategies across their proposals, namely, “the lack of monitoring competence.”

Research limitations/implications

It is important in future research to evaluate the impact of behind the scenes interventions on corporate governance. Also, this paper gives a larger dimension to the effect of shareholder activism on the market performance in the specific context of earnings management, thus justifying the need to expand this study using other methodologies to deepen and better understand this relationship in this context.

Practical implications

The paper's evidence contributes to an understanding of corporate governance. The finding of this study will help in monitoring and controlling fraudulent earnings management practices that effect on market performance. Further, this study is important to investors, academics and policymakers, as it demonstrates that governance reforms that encourage firms to adopt better governance practices that reduce the likelihood of earnings management.

Originality/value

To the best of the author’s knowledge, this paper pioneers in focusing on the impact of the shareholder activism and earnings management on the market performance because previous studies put more emphasis on pair-wise relations (Shareholder activism-earnings management, earnings management-market performance and shareholder activism-market performance). This study provides empirical evidence on the effectiveness of the relationship between shareholder activism and earnings management on market performance.

Details

International Journal of Law and Management, vol. 62 no. 5
Type: Research Article
ISSN: 1754-243X

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Article
Publication date: 12 November 2018

Ambareen Beebeejaun and Jushveer Koobloll

Shareholder activism works when shareholders understand something about the characteristics of the business that the board doesn’t”. As complex the term shareholder

Abstract

Purpose

Shareholder activism works when shareholders understand something about the characteristics of the business that the board doesn’t”. As complex the term shareholder activism may seem, it demonstrates a very simple phenomenon of how shareholder take control of a situation to turn it in their favor. The whole world has taken an activism “twist” where every person has a word to say. The same characteristic of the society is showcased in this paper where engagement of shareholder is questioned whether it helps to promote effective corporate governance. Given the fact that Mauritius has a rather low shareholder activism framework, this research aims to depict the international picture of the issue at different levels to reach a consensus with the local market. It was a major challenge as very little research has been conducted to accurately contrast shareholder activism with corporate governance. However, the international standards aim at giving a clear picture of how the shareholder activism actually functions.

Design/methodology/approach

The research has adopted a black letter approach by analyzing relevant laws and legislations governing corporate governance matters in Mauritius and the USA, Malaysia, France and South Africa. Thereafter, a comparative analysis was made between Mauritius laws and the aforementioned countries. Recommendations were then put forward on the subject matter which is shareholder activism.

Findings

Research has shown development in corporate governance alongside the increase in shareholder activism. However, these research studies fail to prove that the development is because of shareholder activism itself. In fact, it could be because of increase in corporate intellects, removal of trade barriers, sustainable corporate practices and many such changes that have affected the corporate market somehow. Hence, it is difficult to conclude, with certainty, that the driver of good corporate governance is, in particular, the phenomenon of shareholder activism. Nevertheless, many result of shareholder activism has demonstrated a rather positive impact on the ongoing of the corporate dealings and on a personal note, it can be said that shareholder activism is a domain where much research and development should be effected as it represents a promising improvement in the way corporations are governed.

Originality/value

The concept of shareholder activism is quite new to the Mauritius legislation. There has not been research done on whether shareholder activism, particularly, is the reason for corporate success or failure. In this light, this paper aims to analyze shareholder activism practices in other countries and puts forward recommendation in the Mauritius context which may be of use to stakeholders concerned.

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Article
Publication date: 3 September 2021

Ulya Yasmine Prisandani

This paper aims to elaborate on the extent to which the Indonesian legal framework has provided room for shareholder activism and the extent to which shareholder activism

Abstract

Purpose

This paper aims to elaborate on the extent to which the Indonesian legal framework has provided room for shareholder activism and the extent to which shareholder activism has been implemented in Indonesia.

Design/methodology/approach

This study combines normative and empirical legal research methods. Indonesian laws and regulations are analyzed aside from the analysis of empirical data and court decisions on shareholder activism implementation.

Findings

Indonesian laws and regulations have accommodated shareholdersactivism and shareholders have started to rectify mismanagement and abuse of power that causes loss to the company through derivative lawsuits. Despite this, Indonesian shareholders are still passive, shown by the number of questions asked in the general meetings of shareholders despite the high attendance percentage. Shareholders have also formed associations to gather more influence on the company’s decision-making process.

Research limitations/implications

The empirical observation in this study was limited to LQ45 companies of the February to July 2021 period. This study can be useful to improve corporate governance and corporate communication in a company to encourage higher participation of individual/minority shareholders. This study also serves as an extension to numerous studies on shareholder protection, corporate governance and corporate law in Indonesia.

Originality/value

Study on shareholder activism in Indonesia is still rare, despite the rising urgency of company supervision and monitoring to prevent mismanagement. To fill in that gap, this research hopes to initiate discussion on shareholder activism in relation to shareholder protection, corporate governance and corporate law implementation.

Details

International Journal of Law and Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1754-243X

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Article
Publication date: 1 August 2016

Chinyere Uche, Emmanuel Adegbite and Michael John Jones

The purpose of this paper is to investigate institutional shareholder activism in Nigeria. It addresses the paucity of empirical research on institutional shareholder

Abstract

Purpose

The purpose of this paper is to investigate institutional shareholder activism in Nigeria. It addresses the paucity of empirical research on institutional shareholder activism in sub-Saharan Africa.

Design/methodology/approach

This study uses agency theory to understand the institutional shareholder approach to shareholder activism in Nigeria. The data are collected through qualitative interviews with expert representatives from financial institutions.

Findings

The findings indicate evidence of low-level shareholder activism in Nigeria. The study provides empirical insight into the reasons why institutional shareholders might adopt an active or passive approach to shareholder activism. The findings suggest the pension structure involving two types of pension institutions affects the ability to engage in shareholder activism.

Research limitations/implications

The research study advances our understanding of the status quo of institutional shareholder activism in an African context such as Nigeria.

Practical implications

The paper makes a practical contribution by highlighting that regulators need to consider how the financial market conditions and characteristics affect effective promotion of better governance practices and performance through shareholder activism.

Originality/value

This study draws attention to the implication for shareholder activism of complexities associated with an institutional arrangement where two types of financial institutions are expected to operate and manage the private pension funds in a country.

Details

Corporate Governance, vol. 16 no. 4
Type: Research Article
ISSN: 1472-0701

Keywords

Content available
Article
Publication date: 7 April 2020

Carine Girard and Stephen Gates

This paper aims to demonstrate that state shareholders are confronted with contradictory logics leading to institutional contradictions that activist shareholders can…

Abstract

Purpose

This paper aims to demonstrate that state shareholders are confronted with contradictory logics leading to institutional contradictions that activist shareholders can exploit. The competing logics of the state as shareholder and their impact on corporate governance and shareholder activism offer fertile grounds for research advances in Coordinated Market Economies (CMEs).

Design/methodology/approach

Through an extensive literature review of state ownership, institutional contradictions and shareholder activism, this paper analyzes two case studies involving the French State as shareholder.

Findings

In the French context, these two cases illustrate how institutional contradictions result in opportunities for shareholder activism. By focusing on the institutional contradictions of the state shareholder, this investigation suggests a need for experimental research to observe how shareholder activists adapt to each institutional change in CMEs. This experimentation can help policymakers to avoid creating additional conditions that shareholder activists can exploit.

Research limitations/implications

This focuses only on France and its state shareholdings. To generalize results, studies of other CMEs and state shareholders are needed.

Practical implications

Policymakers should consider all legislative proposals for their potential to deviate from corporate governance practice by experimenting with them in a laboratory setting. Shareholder activists can compare state shareholders’ actions against the state’s legislation to emphasize institutional contradictions that counter minority shareholders’ rights.

Originality/value

This research is the first to analyze how the state as shareholder can exploit its competing logics to resist against shareholder activism and support management or to become itself a shareholder activist.

Details

Corporate Governance: The International Journal of Business in Society, vol. 20 no. 3
Type: Research Article
ISSN: 1472-0701

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Article
Publication date: 15 February 2013

Salar Ghahramani

The purpose of this paper is to examine the propensity of sovereign wealth funds (SWFs) for shareholder activism and their potential impact on corporate governance.

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Abstract

Purpose

The purpose of this paper is to examine the propensity of sovereign wealth funds (SWFs) for shareholder activism and their potential impact on corporate governance.

Design/methodology/approach

The study highlights the relationships between SWFs and corporate governance and also applies eight antecedents/determinants of institutional activism to analyze whether SWFs have a predisposition for shareholder activism.

Findings

The study only finds two instances of SWF activism. Additionally, it finds that despite their mostly passive investments, SWFs possess a natural tendency toward shareholder activism. Some are more likely to engage in activism than others, however. SWFs with a higher proportion of their assets invested in equities, those with portfolios fully or partially constructed to emulate the broader financial markets through indexing, and those that depend less on external fund managers are the likeliest candidates for activism. The study also finds that the regulatory environment can curb the natural SWF inclination for activist behavior.

Research limitations/implications

Due to the lack of transparency within the SWF universe, this study largely depends on the limited data available for sovereign wealth funds.

Practical implications

Given the growing importance of SWFs, managers, directors, and policymakers must assess SWF activism, its influence on corporate governance, and its implications for public policy deliberations.

Originality/value

This project, to the best of the author's knowledge, is the first study that applies tested financial models to SWFs in order to determine if they have inherent activist tendencies.

Details

Corporate Governance: The international journal of business in society, vol. 13 no. 1
Type: Research Article
ISSN: 1472-0701

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Book part
Publication date: 17 July 2014

Rashid Ameer and Siti Sakinah Azizan

This chapter investigates the short-run and long-run economic implications of the shareholder activism in family-controlled firms in Malaysia.

Abstract

Purpose

This chapter investigates the short-run and long-run economic implications of the shareholder activism in family-controlled firms in Malaysia.

Design/methodology/approach

In order to investigate the impact of MSWG activism on RPT, we collected related party transactions data (sales and purchases) and inter-segment sales from the annual reports of the firms. We use standard event study methodology to calculate abnormal returns for the sample and control firms.

Findings

We do not find significant effect on the share performance in the short-run after MSWG engagement with the targeted firms. However in the long-run, our results show significant improvement in the MSWG targeted family-controlled firms’ performance compared to non-targeted family firms. We also examine the changes in the level of related party transactions. We do not find significant changes in the level of such sales and purchase transactions except for inter-segment sales.

Research limitations/implications

We argue that market is not strong form efficient because market did not react to the MSWG engagement with the management of these companies. We propose that future research should focus on the investors perception of the MSWG involvement so that a clear picture of its significance can be observable to other firms in the market.

Practical implications

Even though the activism practices are still less aggressive in Malaysia than those found in the developed countries such as the United Kingdom and the United States, however our results show that shareholder activism led by MSWG have impact on the family-owned firms performance in the long-run.

Originality/value

We argue that it is the first study to examine MSWG engagements with the family-controlled firms in Malaysia.

Details

Ethics, Governance and Corporate Crime: Challenges and Consequences
Type: Book
ISBN: 978-1-78350-674-3

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Article
Publication date: 16 April 2020

Feng Zhang, Lei Zhu and Liqun Wei

Whether shareholders’ involvement in management benefits the organization’s performance remains inconclusive. The purpose of this study is to reconcile the conflicting…

Abstract

Purpose

Whether shareholders’ involvement in management benefits the organization’s performance remains inconclusive. The purpose of this study is to reconcile the conflicting results by exploring whether and under which contexts shareholder involvement may impact firm innovation performance.

Design/methodology/approach

This study attempts to combine previous theoretical views (reactance and agency theories) to examine a curvilinear effect of shareholder involvement on firm innovation performance based on governance related to cost-benefit analysis. Drawing on data from 174 Chinese manufacturing firms, the hierarchical regressions were used to test the hypotheses.

Findings

The study finds that shareholder involvement has a U-shaped relationship with firm innovation performance. Moreover, ownership incentive strengthens the U-shaped relationship, while monitoring weakens it.

Originality/value

Examination of the U-shaped main effect of shareholder involvement and these contingent factors further explains the mixed empirical results concerning the link between shareholder activism and firm-level performance.

Details

Chinese Management Studies, vol. 14 no. 3
Type: Research Article
ISSN: 1750-614X

Keywords

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