Investor Activism and Firm Time Horizon: Do Activist Campaigns Influence Firms’ Strategic Priorities

Abstract

This study addresses whether and how activist investors influence firms’ strategic decision-making. Utilizing an attention-based perspective, we propose that activist campaigns are salient events that shift managerial attention toward strategic priorities that shorten firm time horizon. Using a difference-in-difference research design, we compare firms with and without an activist campaign during the 2002-2018 period. We find that firms targeted by activist investors increase their relative emphasis on strategic priorities that can enhance shareholder value in the short term. This observation of a shift in priorities indicates that activist campaigns serve to shorten firm time horizon. We also find that firms with greater institutional investor stock ownership and firms led by CEO founders are more likely to respond to activist campaigns by emphasizing short-term strategic priorities.