By Dirk Schiereck *

(exechange) — October 1, 2020 — Public companies have recently received more pressure from shareholders than ever before with the number of activist campaigns reaching a global all-time high of 226 in 2018 (as counted by Lazard).

Although financial factors still appear to be predominant determinants of investment decisions, the final impetus that leads to an activist investment often remains a “black box.”

Analyzing all major shareholder activist investments in S&P 1500 companies between 2003 and 2017, we find that activists indeed do not invest solely based on governance-related or financial motives but also take management characteristics of CEOs and CFOs, such as gender and behavioral biases, into account. (1)

Obviously, shareholder activists prefer board members who are more likely to engage in open negotiations and, therefore, prefer companies with non-overconfident and/or female board members. This tendency is particularly pronounced with regard to CFOs.

A non-overconfident CFO (female) can increase the likelihood of a shareholder activist attack by up to 35% (50%).

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(1) Nicolas Schreiber / Dirk Schiereck: CFO Overconfidence, Gender, and Shareholder Activism. Working Paper, TU Darmstadt.

* The writer is a professor of Corporate Finance at the Technische Universität Darmstadt.

Editor’s note: This is a guest post.