On the different styles of large shareholders’ activism.

This paper extends Noe’s (Rev Financial Studies 15:289–317, 2002) model of large shareholder activism in two directions. First, it considers a framework in which large shareholders can choose not only when to monitor, but also how intensively they want to monitor the firm. Second, it considers the impact of laws and regulations by introducing a governance quality parameter that makes monitoring more cost effective. The model yields a new and rich characterization of activism. We find that share wealth (ownership concentration) induces monitoring for higher firm value through more frequent monitoring with unchanged intensity. Cash wealth motivates activism for trading gains, not higher firm value, through less frequent monitoring coupled with higher intensity. We also find that better governance leads to higher firm value through more frequent but less intense activism. When asymmetries within the group of large shareholders exist, the model predicts that the larger/wealthier/more efficient shareholders are more active. These results are broadly consistent with the empirical evidence.