Standing on the shoulders of giants: The effect of passive investors on activism
Abstract
We analyze whether the growing importance of passive investors has influenced the
campaigns, tactics, and successes of activists. We find activists are more likely to pursue
changes to corporate control or influence when a larger share of the target company’s stock
is held by passively managed mutual funds. Furthermore, higher passive ownership is
associated with increased use of proxy fights and a higher likelihood the activist obtains
board representation or the sale of the targeted company. Our findings suggest that the
large ownership stakes of passive institutional investors mitigate free-rider problems and
ultimately increase the likelihood of success by activists.