Shareholder activism in reits downs 2019 real estate. It features a single activist and a target rm trading at a discount from fundamental value. Our paper contributes to the literature in a number of ways. A public firm is controlled by its board of directors, which not only cares about shareholder value but also has private benefits from keeping the. Following intervention, activist targets make fewer acquisitions but obtain substantially higher returns by avoiding large and diversifying deals and refraining from acquisitions during merger waves. Shareholder activism externalities munich personal repec. Shareholder activism has become an increasingly in uential force. Activist shareholders purchase shares in a public company with the express purpose of effecting direct change. Essays on corporate governance and shareholder activism.
Hence, there is a dire need for minority shareholders to be more active and responsive in their dealings with corporations. The liquidity of the ceo talent market exacerbates the externality. Gantchev, gredil, and jotikasthira 2015 empirically show that activism in one firm is a valid instrument for an increase in the. The costs and benefits of shareholder democracy by. It is based on data made available to us by hermes, the fund manager owned by the british telecom pension scheme, on engagements with management in companies targeted by its uk focus fund. Corporate governance causes for shareholder activism as shareholder interests have become more diverse, and costs of fighting activist shareholders grow, companies have sought to both limit shareholder activism and decrease its visibility.
Institutional trading and hedge fund activism nickolay gantchev, chotibhak jotikasthira to cite this article. I model activism as a sequential decision process consisting of demand negotiations, board representation and proxy contest and. Shareholder activism, mergers and acquisitions, corporate governance, empire building, hedge funds. Boyson, nickolay gantchev, and anil shivdasani november 2015 abstract activist hedge funds play a critical role in the market for corporate control. Activists initially attempt friendly negotiations with management, as a hostile campaign. Recent work on hedge fund activism documents substantial abnormal returns but fails to answer the question whether these returns cover the large costs of activist campaigns. Pdf shareholder activism has become a dynamic institutional force, and its associated, rapidly. Evidence from a sequential decision model august 12, 2012. Activism and empire building institute for private capital. Nickolay gantchev, oleg gredil and chotibhak jotikasthira november 20 abstract this paper empirically studies the spillover effects of hedge fund activism. Active shareholder engagement safeguards the interests and the rights of the minority shareholders from the effect of agency relationships and from the consequences of the unique atmosphere of shareholder activism in malaysia. Evidence from a sequential decision model nickolay m. Mccahery, sautner, and starks 2016 show that behindthescenes activism, private discussions with management, is the most common form of activism.
The research achieves this by exploring the perspectives of company directors as they relate to the. Since shareholders could vote, activism has existed. There are two views on the questions of whether the stock market values soft shareholder activism. Activism and empire building by nickolay gantchev, merih. Hedge fund activists target firms engaging in empire building and improve their future acquisition and divestiture strategy. Gantchev 20 describes shareholder activism as a sequential process. Preliminary results and some new empirical evidence presentation by professor yvan allaire ph. This kind of activism differs from more traditional forms of shareholder activism, such as shareholder proposals.
Although several recent studies show that shareholder activism improves the performance of targeted firms, our understanding of the mechanisms through which activists enhance shareholder value remains limited. Evidence from employee pension plans anup agrawal and yuree lim october 2019 abstract we find that defined benefit employee pension plans of firms that are targets of hedge fund activism experience underfunding and their defined contribution plans experience reductions in employer contributions. Gantchev, gredil, and jotikasthira 2015 empirically show that activism in one firm is a valid instrument for an increase in the likelihood of activism at a closely matched industry peer firm. Evidence from a sequential decision model, journal of financial economics on deepdyve, the largest online rental service for scholarly research with thousands of academic publications available at your fingertips. To a large extent, activism is a debate about capital deployment, risk tolerance, and performancetopics that are typically part of managements and the boards agenda in the normal course of business. Investor protection and the longrun performance of activism. A shareholder seeking to replace existing board members in a proxy contest must. First, to our knowledge, there is no systematic study that examines shareholder activism in reits. Pdf shareholder activism, corporate social responsibility. Due to this positive externality, the activists intervention is inefficiently low. The phrase is used in a number of different ways, which can be confusing. Shareholder activism, mergers and acquisitions, corporate governance, empire building, hedge funds jel classification.
Insider activism jonathan cohny mitch townerz aazam virani x october 2017 abstract we show that shareholders at the periphery of control use activist tactics to in uence rm policies, which we term quasiinsider activism. Activism threat, defined as a heightened rate of recent activism in an industry, predicts a higher probability that a. Oct 21, 2015 we therefore exploit activism peer firm settings and construct reduced form empirical models for the relation between activism and disclosure. Shareholder activism in reits no recent development has influenced firms strategic and financial decisionmaking as profoundly as the surge in shareholder activism following the global financial crisis.
The costs of shareholder activism scholarlycommons university. In contrast with most previous studies of activism, we report that the fund executes shareholder. Shareholder activism since much of the prior research on shareholder activism has focused on hedge funds, we adopt a wider view of the source of activism by including everyone that files a sc d. Activist hedge funds and activism mergers introduction.
Katz stern school of business, new york university 44 w. Mar 25, 2018 first, to our knowledge, there is no systematic study that examines shareholder activism in reits. This papers first contribution to the literature is to examine the effect of different shareholder activism approaches on target firm value. Through their voting rights, shareholders have the formal power to affect the governance of public companies. Introduction in recent years, shareholder activists, often represented by activist hedge funds, have been playing an. This article reports a unique analysis of private engagements by an activist fund. Shareholder value creation from hedge fund activism occurs primarily by influencing takeover outcomes for targeted firms. Corporate governance at the periphery of control jonathan cohny mitch townerz aazam virani x march 2019 abstract we document the role of investors at the periphery of control \quasiinsiders in. Several extensions further generate a number of novel insights.
This paper provides benchmarks for monitoring costs and evaluates the net returns to activism. This paper provides benchmarks for monitoring costs and evaluates the net returns to shareholder activism. A second strand of literature in management examines the impact of shareholder activism on csp. Their solution is for other shareholders to collect information and weed out the bad proposals in order to reap the full benefits of lowcost shareholder activism. An important consequence of voluntary disclosure is less adverse selection in the capital markets. Gantchev, nickolay, the costs of shareholder activism. We examine the relation between shareholder activism and voluntary disclosure. Spillover effects of hedge fund activism nickolay gantchev, oleg gredil and chotibhak jotikasthira august 2016 abstract hedge fund activism has been associated with substantial improvements in the governance and performance of targeted firms. This paper provides benchmarks for monitoring costs and evaluates the net returns to. I model activism as a sequential decision process con. A shareholder seeking to replace existing board members in a proxy contest must run a public.
Soft shareholder activism doron levit july 2012 abstract this paper studies the conditions under which voice and exit are e. Gantchev and giannetti believe lowcost activists may generate too many uninformed proposals. Much of the shareholder activism literature is cast in this image of self. Nickolay gantchev, oleg gredil and chotibhak jotikasthira march 2014 abstract hedge fund activism is a potent governance device associated with substantial improvements in the performance and governance of target firms. Evidence from a sequential decision model this paper provides benchmarks for monitoring costs and evaluates the net returns to shareholder activism. Mainstream finance research excludes reits from their samples, because reits have unique regulatory requirements and our search of the real estate literature on the topic of shareholder activism returned no results. A shareholder seeking to replace existing board members in a proxy contest must run a public campaign, hire legal expertise, and. Gantchev lucian taylor recent work on hedge fund activism documents substantial abnormal returns but fails to answer the question whether these returns cover the large costs of activist campaigns.
Nickolay gantchev, chotibhak jotikasthira 2018 institutional trading and hedge fund activism. The purpose of this research is to provide a better understanding of shareholder activism in south africa. Activists foster acquisition activity at targeted firms through the intensity of their engagement with management and their prior record in activism mergers. Nickolay gantchev the costs of shareholder activism. Understanding the role of shareholder activism is important because shareholder activism represents one of the most influential external governance mechanisms to facilitate economy growth. In this paper, we look beyond the targets and investigate whether. Evidence shows that different types of activists impact firm outcomes differently eesley et al. A public firm is controlled by its board of directors, which not only cares about shareholder value but also has private benefits from keeping the status quo e. Shareholder activism and voluntary disclosure introduction. Shareholder activism and voluntary disclosure springerlink.
Gantchev 20 builds a sequential decision model to estimate the costs of proxy fights and other stages of shareholder activism. This shareholder activism manual is designed to assist public companies and their boards of directors, policymakers and other interested parties in better understanding the many facets of shareholder activism. The activism literature has only indirectly explored the link between company disclosures and 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. The sequential denition of activism can be presented theoretically as a dynamic discretechoice model. Our shareholder activism resource center, built from our unparalleled expertise in applicable securities laws, proxy rules and current state of market practice on both sides of the atlantic, is updated regularly and includes schulte attorneyauthored articles of interest, alerts on cases and emerging rules and regulations, practice highlights. Only a shareholder activist has the expertise and motivation to e. One class of traders that finds less adverse selection unprofitable is activist investors who target mispriced firms whose valuations they can improve. There is little doubt that shareholder activism has increased in scale and now plays an important role in shaping the corporate governance of companies. Understanding the role of shareholder activism in banking is also important because banks are different from nonfinancials in several different respects that can impact their corporate governance and the economy at large. Bad proposals are less likely to obtain shareholder voting support in firms in which a larger fraction of shareholders collects information. Shareholder activism and engagement your faith your finance.
Shareholder activism and engagement the phrase shareholder activism refers to shareholders using their power to improve company policy and practice. Finally, we examine changes in the number of board positions held by directors at other public firms as a proxy for reputational effects of shareholder activism. Along path b voice has a different tenor and behavioral expression, underpinned by a contrasting approach to self. Evidence from a sequential decision model abstract recent work on hedge fund activism documents substantial abnormal returns but fails to answer the question whether these returns cover the large costs of activist campaigns. Not with the purpose of achieving better performance, but for publicitys sake. Shareholder activism is a broad term used to describe various shareholder efforts to influence. In their survey of shareholder activism, gillan and starks 2007 define activists as investors, who dissatisfied with some aspect of a companys management or operations, try to bring about change within the company without a change in control emphasis added p. Most of the literature on activism focuses on activism campaigns initiated by hedge funds brav et al. One of the keys to being prepared for activists is to understand what theyre doing and why. We therefore exploit activism peer firm settings and construct reduced form empirical models for the relation between activism and disclosure. Oct 21, 2015 in our paper, shareholder activism and voluntary disclosure, which was recently made available on ssrn, we study the relation between disclosure and a specific class of traders, shareholder activists.
In case after case, activists are increasingly trying to gain board inuence by nominating their own directors, a practice that has been bolstered legislatively by the passage of proxy access. Structural defenses to shareholder activism institutional investors and the influential shareholder advisory services have become persistently and famously critical of structural defenses that companies may implement to defend against hostile takeover bids and shareholder activism. Shareholder activism has become a dominant force in corporate activities today, and is a contentious topic in many corporate boardrooms. What is shareholder activism and how can business best handle. Can strong corporate governance selectively mitigate the. Shareholder activism increases the nontarget firms outside option and reduces its ceos outside option, which leads to higher firm profit and lower ceo compensation. I estimate the implied costs of shareholder monitoring by modeling activism as a sequential decision process, in which activists choose a more hostile tactic after less confrontational. Shareholder activism, engagement and proxy fights the 35th annual federal securities institute miami, florida february 2017.
In addition to equivocal results concerning the impact of shareholder activism on corporate outcomes, the separation of prior research into financial and social activism has left unanswered questions critical for both the scholarly discourse on shareholder activism and the normative debate on shareholder empowerment. In addition, the effects of shareholder activism on firm value remain largely unexamined edmans, 2014. But shareholder activism is a rare event, a fact often attributed to its considerable costs. Shareholder activism is a loaded term that is commonly used to describe anything from shareholders taking an interest in a firms direction, to. To study this topic, i analyze a model of shareholder activism with strategic communication. The costs and benefits of shareholder democracy by nickolay. Klein and zur, 4for comparison, fos 2016 nds average abnormal returns of 6. A growing body of empirical work lends support to the proposition that hedge fund activism is beneficial to shareholders and the economy more generally both in the short and long term.