Shareholder Activism and the Deterrence Effect of Democratic Politician Shareholders

Firms strategically establish political connections in the hopes of obtaining access to resources and opportunities controlled by the state. However, little is known about benefits that may accrue to firms from ties with politician shareholders. We explore potential spillover benefits of such ties in the context of financially motivated shareholder activism (“financial activism”). Specifically, we examine whether financial activists are deterred from targeting firms owned by Democratic politicians, who tend to adopt a more interventionist and stakeholder-oriented stance toward economic regulation than Republicans. Based upon an analysis of S&P 1500 firms over a 15-year period, we find that the number of Democratic politician shareholders is negatively associated with a firm’s likelihood of being targeted by a financial activist. This relationship is stronger when Democratic politician shareholders are more publicly prominent and when firms have more Democratic-leaning boards. Our study shows that the benefits firms derive from politician shareholders spill over beyond the business-government interface into the domain of corporate governance. Supplemental Material: The online appendix is available at https://doi.org/10.1287/orsc.2023.17495 .