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Block Share Purchases and Corporate Performance

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Author Info
Jennifer E. Bethel (Babson College and the U.S. Securities and Exchange Commission,)
Julia Porter Liebeskind (University of Southern California,)
Tim Opler (Deutsche Morgan Grenfell and Ohio State University)
Abstract

This paper investigates the causes and consequences of activist block share purchases in the 1980s. We find that activist investors were most likely to purchase large blocks of shares in highly diversified firms with poor profitability. Activists were not less likely to purchase blocks in firms with shark repellents and employee stock ownership plans. Activist block purchases were followed by increases in asset divestitures, decreases in mergers and acquisitions, and abnormal share price appreciation. Industry-adjusted operating profitability also rose. This evidence supports the view that the market for partial corporate control plays an important role in limiting agency costs in U.S. corporations. Copyright The American Finance Association 1998.

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Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 53 (1998)
Issue (Month): 2 (04)
Pages: 605-634
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Handle: RePEc:bla:jfinan:v:53:y:1998:i:2:p:605-634

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