Portfolio Spillover Of Institutional Investor Activism: An Awareness-Motivation-Capability Perspective

Scholars have investigated how shareholder activism by institutional investors- organizations that manage money on behalf of clients-directly shapes the actions of firms that are targeted for activism. We shift attention to an indirect process we call "portfolio spillover"-the extent to which activist behavior targeted toward a firm in an investor's portfolio of holdings influences actions by other firms that are not presently targeted for activism. We examine portfolio spillover by extending the awareness-motivation-capability framework from its traditional domain of competitive dynamics to the governance arena. We theorize that firms will be more likely to respond to investors targeting other portfolio members to the extent that those firms become aware of the implicit threat of activism. We also develop and test theory about how the capability of activists to launch a successful campaign and the motivation of firms to react can moderate this relationship. Using data from a sample of S&P 1500 companies from 2000-2013, we find that firms restructure and reduce growth in response to portfolio spillover. These relationships are stronger when activist investors have capability to attack and firms have motivation to respond.