Towards a behavioral theory of corporate ownership and shareholder activism

Shareholder activism is traditionally rooted in agency theory and based on the notion of financial incentives. We argue that economic approaches to corporate ownership and property rights provide only a partial explanation for shareholder activism and that in order to understand shareholder activism in its full breadth and depth a more cognitive and emotional approach to corporate ownership is necessary. We juxtapose legal and psychological ownership to develop propositions regarding the forms and tactics of activism shareholders are likely to adopt. We propose that shareholders holding varying levels of legal and psychological ownership develop disparate relationships with the organization, place emphasis on different objectives and, thus, use different forms of activism (exit, voice, loyalty) each associated with a different degree of publicity.