The Effect of Pension Fund Activism on the Stock Market and the Role of Media: Evidence from Korea

This study examines how the stock market reacts to pension fund activism. Recent changes in the Korea National Pension Service’s (NPS) voting policy present an ideal context to examine the effect of shareholder activism on stock market reactions. Using a sample of 46 firms for which the NPS pre-disclosed to veto agendas of 2019 annual shareholder meetings, this study demonstrates that the stock market reacts negatively to the NPS “vote no” announcements. The results reveal that shareholders pay attention to the negative signal the NPS’s veto announcement delivers. We also find that publicity is positively related to stock market reactions, consistent with the hypothesis that media coverage is an efficient mechanism for pension fund activism. The study further examines whether the negative stock market response is driven not by the NPS’s pre-disclosure to “vote no,” but just by the pre-disclosure. An event study is conducted using a sample of firms for which the NPS disclosed proxy voting decisions ahead of 2019 annual meetings but did not announce to veto. The results do not reveal a significant market response, suggesting that the pre-announcement itself does not affect the stock market reaction.