Importing Activists: Determinants and Consequences of Increased Cross-border Shareholder Activism

Abstract

Shareholder activism is now an important global phenomenon. We use a sample of nearly 7,000 activist shareholder campaigns across 56 countries to address two principal research questions related to the rise of activism. First, we develop a measure of corporate governance regulation that captures the extent to which a country’s laws facilitate minority-shareholder engagement, a necessary condition for successful intervention, and show that our measure explains cross-country variation in the emergence of activism. Second, we exploit changes in these regulations to examine how an increase in the threat of activism affects corporate outcomes, both for targeted firms and for firms not explicitly targeted by activists. Our evidence suggests that regulatory changes that facilitate investor activism result in increased profitability, higher payouts, and reduced investments. These effects are concentrated in countries where the preexisting governance regulations are weaker and the pre-law-change level of activism was relatively low.