Leech, Dennis (2002) Incentive to corporate governance activism. Working Paper. University of Warwick, Department of Economics, Coventry.

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Abstract

This paper considers the incentives faced by investors (financial institutions) to become actively involved in the direction of their under-performing portfolio companies as proposed by recent policy reports on corporate governance. It proposes a metric by which to measure the returns to activism in terms of the size of holding, measures of risk and return to the company, the degree of under performance and the level of commission received by fiduciary fund managers. By comparing this with costs of activism it proposes a method by which 'significant shareholdings' may be estimated. A significant shareholding is the level above which a shareholding in a company may be said to have private incentives to activism. This approach is applied to two groups of companies listed on the London Stock Exchange, the top 250 and a ten percent random sample. The results indicate that there are very strong incentives for shareholders to be activist participants in corporate governance among the top 250 companies while there is much more diversity among the smaller companies. Results differ considerably between those where the shareholder is an own-account investor and a fund manager.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HD Industries. Land use. Labor
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Corporate governance, Stockholders -- Attitudes, Collective bargaining, Incentives in industry, Agent (Philosophy)
Series Name:	Warwick economic research papers
Publisher:	University of Warwick, Department of Economics
Place of Publication:	Coventry
Date:	November 2002
Number:	No.632
Number of Pages:	34
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
Description:	Third Draft: November 2002
Funder:	British Academy (BA), Nuffield Foundation (NF), University of Warwick
Adapted As:	Leech, D. (2003). Incentive to corporate governance activism. In: Waterson, M. (ed.) Competition, monopoly, and corporate governance : essays in honour of Keith Cowling. Cheltenham : Edward Elgar Pub., pp. 206.227.
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URI:	http://wrap.warwick.ac.uk/id/eprint/1558

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