Portfolio Firm Responses to Institutional Investor Activists

Date
2018
Authors
Cavich, Jason
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Abstract

Institutional Investor Activism (IIA) has become a dynamic institutional force and a valuable tool for institutional investors in their attempt to influence portfolio firms. Correspondingly, there has been a rapidly increasing body of scholarly literature devoted to understanding this phenomenon as it affects numerous disciplines within the organization science academy. Prior research in IIA has considered a number of antecedents and processes that may influence corporate outcomes (Goranova & Ryan, 2014b), yet results have been equivocal thus leaving unanswered questions critical for the scholarly discourse on IIA. An overlooked aspect of this literature is the heterogeneity that exists among institutional investor activists and the impact these differences can have on portfolio firm responses. Following the traditions of stakeholder salience theory (SST), I contend that some institutional investor activists have more power, legitimacy, and urgency than others. As a result, these activists will have a greater likelihood of receiving positive firm responses from their portfolio firms than activists with less power, legitimacy, and urgency. This study examines the characteristics and attributes of institutional investor activists. Then, I examine the boundary conditions by focusing on the moderating effect of activism tactics. By examining portfolio firm responses to the type of IIA using a stakeholder salience theory lens, this dissertation strives to answer the following research question: (A) How does the heterogeneity of institutional investor activists influence the likelihood that a portfolio firm will comply with an investor's requests/demands? And, in order to better understand the forces of activism tactics, this dissertation seeks to answer the question: (B) How is the relationship between institutional investor activists and firm responses moderated by activism tactics? Drawing on 750 observations of IIA in the United States, I undertake an empirical test of the effects of institutional investor heterogeneity on portfolio firm responses using ordinal logistic regression, and I find mixed support for the hypothesized relationships.

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Department
Management