Who Bleeds When Activists Attack? Activist Institutional Ownership And Employee Safety

While prior research on shareholder activism has highlighted how the shareholders of targeted firms can economically benefit, more recent studies suggest that shareholder activism can also economically disadvantage other stakeholders, notably employees. Yet such research has largely focused on the economic impact of shareholder activism on stakeholders. Our study explores a more direct impact on stakeholders, namely how activist institutional ownership influences the rate of injury and illness among the employees of targeted firms. We contend that greater activist institutional ownership can adversely affect the health of employees at targeted firms because activist investors pursue financial returns through increasing operational efficiency of targeted firms at the expense of workplace safety. Further, we theorize that the political ideology of the activist investor and the board as well as the board’s ideological diversity are important factors influencing how competing stakeholder interests are resolved in the context of shareholder activism. Using establishment-level data, we find support for our theory. Our study contributes to shareholder activism research by highlighting a more direct interest conflict between activist shareholders and employees and by explicating the political ideology of activist shareholders and boards as factors governing such a conflict. Our study also contributes to research on human capital by highlighting how the firm’s ownership structure can harm its human assets.