Shareholder activism with strategic investors

Andras Danis

Finance Research Letters, 2020, vol. 33, issue C

Abstract: Admati et al. (1994, Journal of Political Economy) predict that activist shareholders sell most of their shares to passive investors, which destroys the activist’s incentive to engage in value-enhancing monitoring. I extend their theoretical framework by assuming a finite number of passive investors instead of a continuum. In my model, passive investors take into account the effect of their own demand for shares on the activist’s incentives. As a result, they buy fewer shares from him, which increases his monitoring intensity. This is important because empirically, we observe activist investors with large blocks of shares.

Keywords: Shareholder; Activism; Activist; Hedge fund (search for similar items in EconPapers)
JEL-codes: G23 G34 L26 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:33:y:2020:i:c:s1544612319302442

DOI: 10.1016/j.frl.2019.06.007

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