Institutional Investor Activism and the Performance Reaction of Mutual Fund Participants

This paper investigates the optimum position to be adopted by a financial group relative to the agency costs of a given firm in which the funds that it trustee manages possess shareholder positions. The fundamental determining factors regarding the results that were obtained were as follows: the shareholder structure of the firm that was the object of the operation, the effectiveness of the supervisory authorities, the extent of the financial group's backing of its asset management division and the clients' performance reaction to the funds. It was determined, in particular, that the complete absence of performance reaction encourages the maximisation of agency costs and the maximisation of losses for funds. However, if performance reaction does exist, then the model provides different solutions for the values of agency costs as well as for equilibrium space