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Leader-Follower Dynamics in Shareholder Activism

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Abstract
Activist shareholders play a central role in modern corporations, influencing the capital structure, business strategy, and governance of firms. Such “blockholders” range from investors who actively jawbone or break up firms to index funds that are largely passive in that they limit themselves to voting. In between, however, is a key group of blockholders that have historically focused on trading but have embraced activism as an established business strategy in the past few decades. Campaigns involving such “trading” blockholders have become ubiquitous, increasingly targeting large-capitalization firms; further, their attacks feature multiple activists, each with individual stakes that, in isolation, are unable to control targets. In this post, we ask three questions: (1) How do trading activists build stakes before an attack, while anticipating that other investors may have similar incentives? (2) Does the nature of strategic trading change relative to settings where activism is unlikely to occur? (3) Are there trade-offs between trading and the firm’s long-term value?

Suggested Citation

  • Doruk Cetemen & Gonzalo Cisternas & Aaron Kolb & S Viswanathan, 2023. "Leader-Follower Dynamics in Shareholder Activism," Liberty Street Economics 20230906, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:96703
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    References listed on IDEAS

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    More about this item

    Keywords

    financial markets; stocks; trading; activism;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services

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