Reputation and Investor Activism

Investor activism is an important mechanism by which a company’s shareholders can affect corporate decisionmaking. To legally compel corporate managers to change policies, activist investors must engage in proxy fights during which they solicit support for their proposals from other shareholders. Proxy fights involve significant costs and therefore are infrequent: 91 percent of the activist campaigns in our sample do not involve proxy fights. Given the infrequency of proxy fights, a natural intuition would be that target managers rarely concede to activist demands. However, we show that activist campaigns without proxy fights are surprisingly effective. This leads to an important … Read more