The Costs of Shareholder Activism: Evidence from a Sequential Decision Model
Publication Date
7-22-2010
Abstract
This paper provides benchmarks for monitoring costs and evaluates the net returns to shareholder activism. I model activism as a sequential decision process consisting of demand negotiations, board representation, and proxy contest and estimate the costs of each activism stage. A campaign ending in a proxy fight has average costs of $10.71 million. I find that the estimated monitoring costs reduce activist returns by more than two-thirds. The mean net activist return is close to zero but the top quartile of activists earns higher returns on their activist holdings than on their non-activist investments. The large-sample evidence presented in this paper aids in understanding the nature and evolution of activist engagements.
Document Type
Article
Keywords
Shareholder activism, Hedge funds, Institutional investors, Monitoring, Corporate Governance
Disciplines
Finance
DOI
10.2139/ssrn.1646471
Source
SMU Cox: Finance (Topic)
Language
English
