Activism of Institutional Investors, Corporate Governance Alerts and Financial Performance

Institutional investors are predominant on the financial markets and are becoming more active in their portfolio management. This article attempts to enhance our understanding of the incidence of shareholder activism on market reaction in the wake of several previous American studies. Since 1999, SBF120 companies in France that do not respect the "Code of Best Practices on Corporate Governance as set out by the AFG1" are added to a widely circulated "target list." The aim of this article is to examine the impact of the activism of institutional investors on shareholder wealth in France. Our empirical study examines the AFG alerts on financial performance, using a short-term event study methodology. Our findings indicate a negative effect on the wealth of shareholders on the day of the alert. These results lead us to believe that the impact depends on past performance measured by book ratios or expressed in relation to the future premium opportunity for shareholders.