Shareholder activism refers to efforts to preserve the rights of minority shareholders through the power of equity

holdings and generate actions that cause profits to investors. This article examines the relationship between

shareholder activism and corporate finance from the context of concepts and emerging trends in Malaysia.

Drawing from doctrinal analysis and extant of literature, the study explores the concept of shareholder activism

and its role in promoting good corporate governance in corporate finance. Shareholder activism has gained

attention globally, including in Malaysia, where institutional investors and shareholder activist are increasingly

influential. The article argues that shareholder activism could enhance corporate governance, align financial

objectives, and promote sustainable corporate finance. Emerging trends such as environmental, social and

maximising shareholder wealth (Brealy, 2019).However, the rise of shareholder activism highlights how

investors, particularly institutional shareholders, exercise their rights to influence corporate governance and

financial strategies, often as a corrective mechanism to agency problems (Gillan & Starks, 2003; Jensen &

Meckling, 1976).

This article argues that shareholder activism is as a mechanism to strengthen corporate governance by improving

accountability, transparency, and oversight, thereby reducing agency costs and safeguarding minority

shareholder interests (Gillian & Starks, 2007; Shleifer & Vishny, 1997). Such activism plays an important role

in aligning financial objectives with shareholder expectations, ensuring that corporate policies are directed

towards sustainable value creation rather than short-term managerial opportunism (Bebchuk, 2005a).

Increasingly, activism is also linked to the promotion of sustainable corporate finance, as investors demand that

This study draws upon three leading theories namely, agency theory, stewardship theory, and shareholder

primacy theory. These theories will be discussed to establish a conceptual framework for understanding the

interaction between boards of directors and shareholders. Together, these theories provide an analysis to explain

the mechanisms of accountability, trust, and value maximisation within corporate governance.

Under the agency theory, it is regarded that shareholders principally employ directors as their agents to manage

the company on their behalf. As principals, shareholders should educate directors on how to wield their power

and perform their duties. Agency theory emphasises the inherent conflict that arises from the separation of

ownership and control, highlighting the need for monitoring mechanisms to reduce agency costs and align

managerial behaviour with shareholder interests. Leading corporate governance literature (Berle & Means,

setting must direct its efforts toward constraining the power of controllers, rather than merely disciplining

managerial agents. It has been established that around 67% of Malaysian PLCs are characterised by the existence

of controlling shareholders, which usually are families or government-linked entities that hold an influence

(voting power) that exceeds their ownership share and who acquire this firm-specific and inferential decision-

making authority by pyramiding structures, cascading subsidiaries and other control-enhancing means (Abdul

Wahab et al., 2021).

Secondly, the stewardship theory offers an alternative perspective to the agency theory. It is a concept in

corporate governance and management that focuses on the role of corporate executives and managers as stewards

of the organisation on behalf of its owners, typically shareholders. In this respect, stewardship theory contrasts

sharply with agency theory, which assumes that agents are inherently self-interested and therefore require

goals (Davis et al., 1997). Since the stewards are expected to act in the interests of the organisation, they can be

trusted and granted greater autonomy to pursue collective goals.

Last but not least, the shareholders' primacy theory. This theory supports the notion that corporate law imposes

an obligation upon the corporate decision makers to focus on shareholders’ interests. This theory was derived

from Berle and Dodd’s debate in the 1930s where both scholars argued about the better characteristics of

corporate law and how to develop them in the future (Bratton & Wachter, 2008). Berle argued that shareholders

are the true owners of a corporation, with directors serving as their agents or trustees. As such, corporate

management must give priority to shareholder interests. However, Dodd advanced what later evolved into

stakeholder theory, arguing that corporations carry both profit-making and social responsibilities, and that

directors should also safeguard the interests of employees, customers, and the wider public (Dodd, 1935). This

This theory also supports the concept of corporate democracy, where shareholders should have the right to vote.

In addition, it was proposed that shareholders should be granted the authority to intervene in what Bebchuk

termed ‘game-ending’ decisions, where those fundamental and irreversible corporate choices could significantly

alter or jeopardise shareholder interests, such as mergers, takeovers, or large-scale asset disposals. According to

this view, such intervention rights would serve as an essential counterbalance to managerial discretion, ensuring

that directors and executives remain accountable to the corporation's actual owners, while also safeguarding the

firm's long-term value.

trends of shareholder activism in corporate finance in Malaysia.

Shareholder activism refers to the efforts undertaken by shareholders to influence a corporation's behaviour by

phenomenon that corresponds to the various actions undertaken by investors to influence corporate management

financial outcomes (Chung & Talaulicar, 2010). Social shareholder activists believe they must achieve more

than financial profit. They voice their concerns to change unjust and harmful corporate practices that affect the

welfare of non-shareholding stakeholders (Karpoff, 2011). Examples of such practices are engaging in doubtful

trading, questionable governance practices or engaging in value-destroying transactions such as environmental

regulation violations. In addressing information asymmetry, shareholder activism is believed to be one of the

methods to reduce such problems by sending correspondence to the targeted firm to seek clarification on certain

issues (Ameer & Rahman, 2009). Therefore, active shareholder engagement in various forms would be more

effective if there is active engagement between the shareholder and the board.

about the company's declining performance. Voice mechanisms, on the other hand, are political solutions and a

form of non-market force in which the members express their dissatisfaction with the organisation’s performance

by organising dialogue with management, issuing shareholder resolutions, or building shareholder coalitions and

accruing additional voting rights (Mohd Sulaiman et al., 2005).

Corporate finance is a core area of financial management that deals with how companies make decisions about

funding, investment, and the distribution of returns. Its main objective is to maximise the firm’s value while

managing risks and ensuring efficient allocation of financial resources (Brealey et al., 2011).This includes

making informed investment decisions, managing capital structures, and understanding the implications of

market conditions on corporate strategies, while also considering the potential influence of behavioural

specific processes within the company to deliberate on certain proposals, either to invest or disinvest in certain

ventures. Such a decision is usually undertaken by the board of directors. The financing principle stipulates that

an organisation’s funding is derived from a mix of debt and equity, enabling a corporation to operate efficiently.

The decision to inject capital from debt or equity requires the company to understand the cost and risk associated

with each type of funding. Last but not least, the corporation needs to decide whether to retain profits in the

business or distribute them to the shareholders. A company’s dividend policy is widely perceived as a key

indicator of corporate performance and financial health. However, such policies vary significantly across

jurisdictions and industries, and they often display inconsistency from year to year due to market conditions and

primarily to safeguard their interests and align corporate objectives. However, in practice, these members often

act opportunistically in favour of the majority, to the detriment of minority shareholders. Scholars have argued

that a board composed solely of executives may be ineffective in its supervisory role, as such members are prone

to short-sightedness and limited perspective. Consequently, the board may make decisions that could put the