Institutional shareholder activism and limited investor attention
Article first published online: 24 NOV 2010
Copyright © 2010 John Wiley & Sons, Ltd.
Review of Behavioral Finance
Volume 2, Issue 2, pages 106–125, November 2010
How to Cite
Budsaratragoon, P., Lhaopadchan, S. and Hillier, D. (2010), Institutional shareholder activism and limited investor attention. Rev. Behav. Fin., 2: 106–125. doi: 10.1002/rbf.12
- Issue published online: 24 NOV 2010
- Article first published online: 24 NOV 2010
- shareholder activism;
- limited attention;
- behavioral finance;
- JEL CLASSIFICATION:;
We investigate whether limited investor attention is a factor in the effectiveness of institutional shareholder activism. Prior research has shown that an inability of market participants to allocate sufficient intellectual effort to the investment decision can have an impact on market price and volume behavior. We extend this research in an applied setting by considering the effectiveness of the California Public Employees' Retirement System (CalPERS) focus list, whose aim is to improve the performance and corporate governance of target firms. We find that the share price and volume response to being included in the focus list is a function of the investor attention in a stock, which in turn has an impact on the subsequent managerial response. This suggests that when attention is a scarce cognitive resource, the proactive exploitation of news signals can be an efficient activism strategy. Copyright © 2010 John Wiley & Sons, Ltd.