Investor Relations, Engagement, and Shareholder Activism

A dedicated investor relations (IR) function facilitates direct and ongoing dialog between management and shareholders. This paper examines whether this form of engagement mitigates activism that relies upon support from other shareholders. We find that IR engagement is associated with increased investor confidence in management and the board, as well as a lower likelihood of activism, with this deterrent effect becoming stronger when there are fewer frictions surrounding the development of mutual understanding and trust with investors. We also find that when firms do experience an activist campaign, firms with IR engagement have less costly and contentious campaigns, including a lower likelihood of CEO turnover, than those without such a commitment. Taken together, our findings suggest that direct and ongoing IR engagement is an important factor in achieving mutual understanding and trust between the firm and its shareholders, which deters activist investors and mitigates the costly escalation of initiated campaigns.

JEL Classifications: G10; G32; G34; M40; M41.

This is the accepted manuscript version of the following article: Kimball L. Chapman, Gregory S. Miller, Jed J. Neilson, Hal D. White; Investor Relations, Engagement, and Shareholder Activism. The Accounting Review 1 March 2022; 97 (2): 77–106. doi: https://doi.org/10.2308/TAR-2018-0361

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Work Title Investor Relations, Engagement, and Shareholder Activism
Access
Open Access
Creators
  1. Kimball L. Chapman
  2. Gregory S. Miller
  3. Jed J. Neilson
  4. Hal D. White
License In Copyright (Rights Reserved)
Work Type Article
Publisher
  1. American Accounting Association
Publication Date March 25, 2021
Publisher Identifier (DOI)
  1. 10.2308/tar-2018-0361
Source
  1. The Accounting Review
Deposited May 09, 2022

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Version 1
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  • Created
  • Added CMNW+(20210205)-1.pdf
  • Added Creator Kimball L. Chapman
  • Added Creator Gregory S. Miller
  • Added Creator Jed J. Neilson
  • Added Creator Hal D. White
  • Published
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    Description
    • <jats:title>ABSTRACT</jats:title>
    • <jats:p>A dedicated investor relations (IR) function facilitates direct and ongoing dialog between management and shareholders. This paper examines whether this form of engagement mitigates activism that relies upon support from other shareholders. We find that IR engagement is associated with increased investor confidence in management and the board, as well as a lower likelihood of activism, with this deterrent effect becoming stronger when there are fewer frictions surrounding the development of mutual understanding and trust with investors. We also find that when firms do experience an activist campaign, firms with IR engagement have less costly and contentious campaigns, including a lower likelihood of CEO turnover, than those without such a commitment. Taken together, our findings suggest that direct and ongoing IR engagement is an important factor in achieving mutual understanding and trust between the firm and its shareholders, which deters activist investors and mitigates the costly escalation of initiated campaigns.</jats:p>
    • <jats:p>JEL Classifications: G10; G32; G34; M40; M41.</jats:p>
    • A dedicated investor relations (IR) function facilitates direct and ongoing dialog between management and shareholders. This paper examines whether this form of engagement mitigates activism that relies upon support from other shareholders. We find that IR engagement is associated with increased investor confidence in management and the board, as well as a lower likelihood of activism, with this deterrent effect becoming stronger when there are fewer frictions surrounding the development of mutual understanding and trust with investors. We also find that when firms do experience an activist campaign, firms with IR engagement have less costly and contentious campaigns, including a lower likelihood of CEO turnover, than those without such a commitment. Taken together, our findings suggest that direct and ongoing IR engagement is an important factor in achieving mutual understanding and trust between the firm and its shareholders, which deters activist investors and mitigates the costly escalation of initiated campaigns.
    • JEL Classifications: G10; G32; G34; M40; M41.
  • Updated