Abstract
Because of agency conflict in firms with dispersed ownership, governance mechanisms to mitigate this agency cost, such as shareholders’ active monitoring of the firm’s management, have been developed. However, shareholder activism is contextual; therefore, the characteristics of shareholder activism in corporate governance practices in Libyan listed companies we explored. The data were collected from the 42 non-financial and 22 financial companies listed in the Libyan stock market during 2007–2016. Data envelopment analysis was done to generate an efficiency score based on corporate governance and shareholder activism. Linear regression analysis was used to determine whether a relationship exists between the efficiency of corporate governance and shareholder activism. All the companies were characterized by joint private-government ownership. The companies had an average corporate governance index of 2.24. Implementation of the Libyan good corporate governance practices is anticipated to give a score ≥ 2.95.Vote “No” shareholder activism targeting the boards of directors and their committees was the predominant form of shareholder activism (average number of annual events = 3.08) compared to shareholder proposal (average annual events = 1.67) and shareholder negotiation with management (average annual events = 1.6). Shareholder activism was more frequent in companies with low than with average governance scores compared to those with above-average governance scores. Moreover, the scores of shareholder activism were inversely related to corporate governance scores (r = –0.766, p < 0.01). Ordinary least-squares regression analysis revealed that a decrease in corporate governance score of one unit was associated with a 57% increase in shareholder activism (B = –0.57, F = 30.64, p < 0.01).Our study findings indicate that poor corporate governance practices do influence the frequency of shareholder activism in Libyan listed companies. Vote “No” activism is the most frequently used form of shareholder activism. The less frequent use of shareholder proposals and negotiation with management is probably related to legal and sociocultural factors.
Highlights
Good corporate governance is required to protect stakeholder interests and improve corporate performance
Vote “No” shareholder activism targeting the boards of directors and their committees was the predominant form of shareholder activism compared to shareholder proposal and shareholder negotiation with management
The objective of this paper is to provide insight into the characteristics and determinates of shareholder activism in relation to corporate governance quality in a rich Arab country, Libya
Summary
Good corporate governance is required to protect stakeholder interests and improve corporate performance. The objective of this paper is to provide insight into the characteristics and determinates of shareholder activism in relation to corporate governance quality in a rich Arab country, Libya. The Libyan Corporate Governance Code 2007, Corporation Law 2010, and the establishment of Libyan Stock Market Law 2010 provide guidance to listed companies for corporate governance practices, corporate general meetings, transparency requirements, and facilitation of shareholder participation. Libyan Corporate Governance Code 2007 emphasizes that companies must adhere to the best practices of shareholder protection. A few studies have described corporate governance practices in Libya (Abdou, 2015; Abdulsaleh, 2014), but no empirical studies have described the characteristics of shareholder activism and its impact on corporate governance practices in Libyan listed companies. This study hypothesized that lower compliance with corporate governance is associated with higher frequency of shareholder activism
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