Shareholder Activism Externalities

Zhan Li

MPRA Paper from University Library of Munich, Germany

Abstract: Shareholder activism increases the non-target firm’s outside option and reduces its CEO’s outside option, which leads to higher firm profit and lower CEO compensation. Due to this positive externality, the activist’s intervention is inefficiently low. Several extensions further generate a number of novel insights: The liquidity of the CEO talent market exacerbates the externality; common ownership alleviates the externality but exacerbates the free-rider problem, ultimately reducing market efficiency; regulating activists’ interventions decreases market efficiency when similar firms compete for different CEO talents.

Keywords: Shareholder activism; externality; common ownership. (search for similar items in EconPapers)
JEL-codes: G14 G34 (search for similar items in EconPapers)
Date: 2017-08-07, Revised 2019-01-21
New Economics Papers: this item is included in nep-bec and nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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