Three Essays on Shareholder Activism and Family Firms

Shareholder activism has been one of the most instrumental forces driving corporate change in recent years. Increasingly, activist investors have also come to the forefront of management research where they have been portrayed as effective governance actors, who can discipline opportunistic managers on behalf of dispersed shareholders. However, evidence on the performance consequences of specific demands made by activists is limited, and our current perspective fails to consider situations in which their objectives may not align with those of other shareholders. These are important gaps as we cannot fully assess activists’ role in corporate governance without understanding the effectiveness of their advocated strategies and how activists affect firms where dominant shareholders may resist their campaigns. A prime example of such firms is family firms that make up the majority of corporations around the world.This dissertation aims to address these gaps through three studies. In Chapter 1, we use unique, hand-collected data on divestitures undertaken by Fortune 500 companies at the behest of activist investors to measure the impact of activist-impelled divestitures on shareholder value. Our results demonstrate that such divestitures outperform comparable manager-led divestitures, both in the short and long term. In Chapter 2, we combine hand-collected data on family firms with a comprehensive set of activist campaigns to explore the likelihood and performance implications of activist campaigns against family and non-family firms. Our findings reveal that although activists are less likely to initiate campaigns against family firms, the announcement returns to these campaigns exceed those against non-family firms. In Chapter 3, we investigate the relative likelihood of family and non-family firms to resist activists by adopting defensive provisions. Our results show that while family firms are more likely to resist, they tend to adopt provisions that discourage takeovers and are less likely to adopt constitutional limits on shareholder power. Overall, this dissertation contributes to the shareholder activism, family firm, and corporate governance literatures by shedding light on the strategies and types of firms in which activist investors can serve an effective governance function.