Does the Composition of a Company's Shareholder Base Really Matter?

Abstract

Most corporations dedicate significant time and attention to managing their shareholder base. Furthermore, companies overwhelmingly prefer “long-term shareholders” to “short-term shareholders.”

There is little rigorous research, however, that conclusively demonstrates the impact that individual investor groups have on corporate decision making, or that quantifies the premium (or discount) that specific shareholder groups add to corporate value.

We explore this topic in greater detail, and ask: Does the composition of a company’s shareholder base really matter? What substantive impact do shareholder — including activists — have on strategy, investment, and management? How long is long-term? How short is short-term? Can short-term market pressures be offset by long-term compensation incentives?

The Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance and executive leadership. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important. Larcker and Tayan are co-authors of the books Corporate Governance Matters and A Real Look at Real World Corporate Governance.

Keywords: shareholder base, shareholder investment horizon, managing the shareholder base, shareholder influence, shareholder composition, corporate governance, long-term or short-term shareholders

JEL Classification: G3, J33, M52