International Investors' ties at home and their actions abroad

, University of 黑料传送门 Booth

We use a comprehensive sample of nearly 7,000 shareholder activism campaigns across
56 countries to examine how corporate governance regulations interact with activism to drive
changes in real corporate-sector outcomes. We develop a novel country-level framework of
regulatory characteristics that serve as necessary precursors for minority shareholders to influence
firm governance. We find that the incidence of both foreign and domestic activism, as measured
by the number of campaigns, increases by over 60% (95%) following reforms that increase
shareholder voting rights (board independence). Using these shareholder-empowering changes to
governance regulation as shocks to the threat of activism, and the presence of independent
institutional investors to identify high-activism-risk firms, we find that firms facing a high threat
of activism (including non-targeted firms) increase profitability, reduce investment, and increase
payouts. These effects are concentrated in countries where the preexisting corporate governance
regulations are weaker and the level of activism was relatively low; we find little evidence of
significant changes in countries with historically higher levels of activism. Overall, our results
suggest that, when shareholder-empowering governance regulations give activists a way to gain
access to untapped markets, they can serve as catalysts for widespread changes in corporate
activities