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Incentive to corporate governance activism

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Leech, Dennis (2002) Incentive to corporate governance activism. Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.632).

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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

Official Date:

November 2002

Dates:

Date	Event
November 2002	Published

Number:

No.632

Number of Pages:

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Not Peer Reviewed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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