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Not all threats are taken equally: Evidence from proxy fights

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  • Fang Chen
  • Lijing Du
  • Susan M. V. Flaherty
  • Jian Huang
  • Gokhan Torna

Abstract

Previous research shows that activist threats lead to corporate policy concessions. We find that the threat of proxy fights is responded to differently based on its credibility. Decomposing proxy fight threats, we find that only credible threats are associated with more leveraged, more innovative, and less acquisitive corporate policies. Management, however, does not respond to noncredible threats. Further, for materialized fights, the market reaction at announcement is also conditional on the credibility of the threats. Overall, not all activist threats are responded to equally by management or the market, and only credible threats achieve disciplinary effects and favorable valuation.

Suggested Citation

  • Fang Chen & Lijing Du & Susan M. V. Flaherty & Jian Huang & Gokhan Torna, 2020. "Not all threats are taken equally: Evidence from proxy fights," The Financial Review, Eastern Finance Association, vol. 55(1), pages 145-168, February.
    • Handle: RePEc:bla:finrev:v:55:y:2020:i:1:p:145-168
    DOI: 10.1111/fire.12220
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    Cited by:

    1. Steude Dietrich H., 2021. "Challenges of Remote Leadership in a Digitalized Working World 4.0," Management of Organizations: Systematic Research, Sciendo, vol. 85(1), pages 65-86, June.
    2. Fang Chen & Jian Huang & Jianjun Jia, 2022. "Cash Holdings along the Supply Chain: The Downstream Evidence," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 46(2), pages 452-471, April.

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