Incentive to corporate governance activism
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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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|
|Number of Pages:||34|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
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.|
Brealey, Richard A. and Anthony Neuberger (2001), The Treatment of Investment Management Fees and Commission Payments: An Examination of the Recommendations Contained in the Myners Report, London: Fund Managers’ Association.
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