Liquidity and Shareholder Activism
Abstract
This paper documents that stock liquidity improves shareholders’ incentive to monitor management.
Using a hand-collected sample of contested proxy solicitations and shareholder proposals
as occurrences of shareholder activism, we find that poor firm performance increases the probability
of shareholder activism and that this relationship is much stronger for firms with liquid
stock than for other firms. The conclusion that liquidity improves monitoring is robust to different
measures of firm performance and liquidity. We also document that target shareholders earn
positive abnormal returns on the announcement date of activism and conclude that shareholder
activism creates shareholder value.
Description
The WP has previously been published on CCGR homepage: http://www.bi.no/ccgr
Series
CCGR Working Paper1/2009