The Heterogeneity Of Institutional Investor Activists And Their Tactical Interactions

Abstract

Research Question: Institutional investor activism is a powerful, yet not fully understood phenomenon that has had equivocal findings in prior research. This study introduces a novel theoretical framework that examines the heterogeneity of institutional investor activists and their tactics to elicit positive firm responses from their portfolio firms. Research Findings: I undertake an empirical test of a novel framework looking at the effects of institutional investor heterogeneity on portfolio firm responses using ordinal logistic regression. The author found predicted support for hedge funds and public pension funds to receive favorable firm responses. In addition, private multiemployer funds found support for the counter-intuitively predicted negative favorable responses, and proxy-based tactics negatively impacted the influence of public pension funds. The latter two items are counter to most research. Theoretical Implications: Following the traditions of stakeholder salience theory, the author contends that some institutional investor activists and tactics have more power, legitimacy, and urgency than others. Counter-intuitively, their interaction terms can result in negative, not additive effects as the author incorporates refinements of stakeholder salience theory. Practical Implications: Institutional investors activists may be better served to focus on non-proxy-based activism as proxy-based activism may have inconsequential or negative effects in their attempts to influence portfolio firms.