Corporate Governance Antecedents to Shareholder Activism : A Zero-Inflated Process

Shareholder activism has become more widespread, yet the role of corporate governance as antecedent to shareholder activism remains equivocal. We propose a new conceptual model that characterizes the stochastic of observable shareholder activism as a compound product of two latent components representing (a) shareholder activists' propensity to target a company and (b) executives' propensity to privately settle activists' demands. Our model explicitly decouples corporate governance expectations for the two latent components embedded in activism process, and thus allows us to relax assumptions of homogenous shareholder interests and constrained managerial discretion where corporate managers are expected to privately negotiate and settle only value-creating activist demands. Bayesian analysis of zero-inflated Poisson regression reveals that corporate governance relationships with activism vary across shareholder demands and private settlements