Why Do Institutional Investors Oppose Shareholder Activism? Evidence from Voting in Proxy Contests

This paper examines why institutional shareholders frequently oppose activists when activism increases the value of target firms. Because institutions underweight targets and activism could adversely affect the values of rival firms, institutional investors often lack incentives to support activists when gains on targets are diluted or offset by losses on rival firms. Using hand-collected data of mutual and pension funds voting in proxy contests, I find that institutions that benefit less from the activism events are less likely to support the activists. The evidence suggests that institutional investors' portfolio returns explain their support for the activists