Does Shareholder Activism Create Value? A Meta-Analysis

Abstract

Research Question/IssueThis study identifies the determinants of shareholder value created by investor activism. It quantifies and corrects the pool of published empirical estimates for bias due to the selective reporting of empirical results. It examines how various institutional, investor, and research design characteristics affect the shareholder value created by activism.Research Findings/InsightsUsing a meta-analysis of 1973 estimates from 67 studies published between 1983 and 2021, we document that, after adjusting for selective reporting, activism creates a positive shareholder value ranging from 0% to 1.5%, which is smaller than commonly thought. More value is created in settings with better shareholder rights protection and in smaller markets. Activism by individual investors, more confrontational approaches, and campaigns aimed at the sale of the target company enhance firm value more.Theoretical/Academic ImplicationsOur study identifies a specific channel through which the quality of institutional settings mitigates the conflict envisaged by agency theory between firm owners and managers. Our comprehensive synthesis of prior research literature also guides researchers in interpreting and comparing results reported in prior studies and helps them make more informed research design choices in future studies.Practitioner/Policy ImplicationsExploiting the heterogeneity in prior studies, our study informs investors about the value that specific forms of activism create, allowing them to better trade off the costs and benefits of alternative approaches. It also informs regulators about the relevance of institutional characteristics and offers estimates of the relative effectiveness of activism campaigns by various sponsors. These insights help in seeking optimal ways of regulating corporate governance and financial markets.