Do activist shareholders influence a manager’s decisions on a firm’s dividend policy: A mixed-method study

Abstract

Activist shareholders play an increasingly relevant role in management decisions, especially in their activities aimed to influence corporate decisions towards enhanced performance and profitability. However, the level of success of such strategies is not yet fully understood, as reported in the existing literature. Most of the literature has focused on performance, although other firms’ policies catch activist shareholders’ attention. A key strategic decision is precisely the dividend policy. In this paper, we assess the likelihood of a dividend payment and the time invariance of the dividend policy while controlling for firm-specific and market-specific effects. Our data cover the nonfinancial US-based firms targeted by activist shareholders in a large time span from 2000 to 2017. Taking both a quantitative econometric approach and a qualitative one (fsQCA), our findings support the claim that activist campaigns are positively associated with the likelihood of firms’ decisions to pay dividends, even if it occurs at the cost of higher volatility on the dividend level and payout ratio. Our findings also suggest that activist shareholders prefer to collect dividends in the years following the campaigns, arguably as a risk management mechanism.