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Shareholder Activism Externalities

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  • Li, Zhan

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.

Suggested Citation

  • Li, Zhan, 2017. "Shareholder Activism Externalities," MPRA Paper 91635, University Library of Munich, Germany, revised 21 Jan 2019.
    • Handle: RePEc:pra:mprapa:91635
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    File URL: https://mpra.ub.uni-muenchen.de/91635/1/MPRA_paper_91635.pdf
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    References listed on IDEAS

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    1. Boyle, Erik S., 2024. "How do auditors’ use of industry norms differentially impact management evaluations of audit quality under principles-based and rules-based accounting standards?," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 54(C).

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    More about this item

    Keywords

    Shareholder activism; externality; common ownership.;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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