The Ripple Effects of Shareholder Activism: Avoiding Conflicts Neighboring Firms Have Experienced

Keywords: Shareholder Activism, Conflict Avoidance, Conflict Preemption

Abstract: Shareholder activism, where activist investors challenge the management of an organization, brings unwanted conflict and increased pressure for top managers of targeted firms (Gillan & Starks, 2000). To date, research has primarily examined how targeted firms respond to activist pressures and the consequences of activist campaigns on the targeted firms (Goranova & Ryan, 2014; Karpoff, 2001). We extend research on the topic of shareholder activism by looking beyond the targeted firm to consider how neighboring firms may react in order to avoid similar conflict. We develop theory about how and under what conditions non-targeted firms are likely to engage in conflict-preemption tactics to the activist conflict at neighboring firms. Our preliminary results provide support for our hypotheses but also indicate a pattern of preventative responses which are more nuanced and subtle than we had anticipated, though still consistent with our theory.