Two essays on large shareholder activism: A theoretical approach and an empirical approach

Essay 1. Essay One concerns corporate governance mechanisms that attempt to realign shareholder and managerial interests by transferring control. Whether Strong types should attempt to influence management or remain passive in the complete information variation of the model depends on four basic factors: (1) The investor's knowledge of how likely management is to defeat the initiative; (2) The expected share price resulting from a successful initiative; (3) The per-share costs of the initiative; and (4) The per-share value of benefits that the Investor may be able to expropriate from management. The incomplete information extension of the model, in contrast, analyzes the case where Weak types always choose to become active given that management cooperates but will generally prefer to remain passive if management resists. Management is consequently unable to distinguish between Strong and Weak types of Investors and must base its decision on its prior beliefs about the Investor's type. The results are a function of the four basic factors outlined above, as well as a fifth factor: (5) Management's prior probability assessment that the Institution is strong.; Essay 2. The objective of the second essay is to explore corporate governance mechanisms that attempt to realign shareholder and managerial interests without transferring control. The event study portion of the study shows the following: (1) There is some limited evidence that proposals, on average, are associated with changes in firm value, and (2) The identity of the sponsor matters. This provides some support for corporate law theorists who posit that some public funds may be particularly vulnerable to political pressure while others may be more independent. The OLS regression portion of the study shows that the governance and financial variables offer strong evidence that the market uses this data when determining the impact of public fund-sponsored proposals; however, inconsistencies of signs among the regressions limits the interpretative power of these variables.