Shareholder Activism and CEOs' Use of Language

Drawing on signaling theory and the symbolic management perspective, we argue that a CEO’s use of language that is congruent with the prevailing governance model of shareholder value maximization leads shareholders to evaluate the CEO more favorably and to reduce their activism toward the firm. We test this argument by examining CEOs’ expression of the shareholder-value principle or a stakeholder orientation in the letters to shareholders from CEOs of 213 publicly traded U.S. firms. Our analysis shows that the use of shareholder-value language is favorably perceived by shareholders, thereby reducing the probability of the firm being targeted by activists. We find the opposite for the stakeholder orientation: stakeholder-orientation language is negatively perceived by shareholders, increasing the probability of being targeted by activists. We also test whether CEO celebrity moderates the strength of the relationship between CEOs’ use of language and shareholder activism. Our analysis shows that CEO celebrity weakens the strength of the relationship between shareholder value language and the probability of attracting shareholder activists.