Shareholder Activism: Affliction for Incumbent CEOs?

ABSTRACT

We study how shareholder activism shapes CEO careers by distinguishing between two competing hypotheses: discipline and reallocation. Employing a control function approach with expected mutual fund fire sales and purchases as exclusion restrictions, we analyze 3799 US campaigns from 2006 to 2018. We show that shareholder activism affects CEO careers primarily through a reallocation mechanism. It accelerates CEO turnover and strips inside directorships, but it does not impair external career prospects. Targeted CEOs frequently transition to leadership roles in private firms, and their outside directorships are largely unaffected. We further document significant heterogeneity by campaign hostility. The baseline results apply to nonhostile campaigns. Hostile campaigns, in contrast, impose broad and persistent career penalties, consistent with the disciplining hypothesis. Finally, we find that hedge funds differ from other activists primarily in nonhostile campaigns, where their interventions produce more pronounced CEO career adjustments.