Collective Activism

Can investor stewardship codes that call for coordinated activism be satisfied by an Investor Collective Action Organization (ICAO)? In an ICAO, investors work collectively, like a large shareholder, to monitor management and increase value. We analyze the endogenous formation of an ICAO and its equilibrium size, considering free-rider problems and coordination costs. While the ICAO overcomes free-rider problems among its members, it exacerbates them between the ICAO and solo activists. The benefit of joining an ICAO is hump-shaped in size. With moderate coordination costs, ICAO formation features multiple equilibria. Small changes in coordination costs significantly influence ICAO formation and activism. This paper was accepted by Will Cong, finance. Funding: L. Yang thanks the support from the Social Sciences and Humanities Research Council of Canada [Grants 435-2021-0040, 435-2026-0060] and the Bank of Canada [Fellowship]. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2025.02975 .