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Influencing Control: Jawboning in Risk Arbitrage

Author

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  • WEI JIANG
  • TAO LI
  • DANQING MEI

Abstract

In an “activist risk arbitrage,” a shareholder attempts to improve terms of an announced M&A through public campaigns. Activists target deals with low premiums and those susceptible to managerial conflicts of interest, including going‐private deals and deals in which CEOs receive outsized payments. Activist arbitrageurs are associated with a significant decrease in the probability that targets will be sold to the announced bidders, and an increase in the premium paid, both ex post among surviving deals and ex ante among all deals. Activist arbitrage serves as a governance mechanism in M&A and earns higher returns than passive arbitrage.

Suggested Citation

  • Wei Jiang & Tao Li & Danqing Mei, 2018. "Influencing Control: Jawboning in Risk Arbitrage," Journal of Finance, American Finance Association, vol. 73(6), pages 2635-2675, December.
    • Handle: RePEc:bla:jfinan:v:73:y:2018:i:6:p:2635-2675
    DOI: 10.1111/jofi.12721
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    Cited by:

    1. Kim, Sehoon, 2020. "Disappearing Discounts: Hedge Fund Activism in Conglomerates," MPRA Paper 100876, University Library of Munich, Germany.
    2. Harford, Jarrad & Stanfield, Jared & Zhang, Feng, 2019. "Do insiders time management buyouts and freezeouts to buy undervalued targets?," Journal of Financial Economics, Elsevier, vol. 131(1), pages 206-231.
    3. Ordóñez-Calafí, Guillem & Thanassoulis, John, 2020. "Stock selling during takeovers," Journal of Corporate Finance, Elsevier, vol. 60(C).
    4. Yongqiang Chu & Xinming Li & Daxuan Zhao, 2023. "Gender Diversity: From Wall Street to Main Street," Journal of Business Ethics, Springer, vol. 188(1), pages 151-168, November.
    5. Gantchev, Nickolay & Sevilir, Merih & Shivdasani, Anil, 2020. "Activism and empire building," Journal of Financial Economics, Elsevier, vol. 138(2), pages 526-548.
    6. Ryan Flugum & Matthew E. Souther, 2020. "External monitoring and returns to hedge fund activist campaigns," Review of Financial Economics, John Wiley & Sons, vol. 38(1), pages 97-140, January.
    7. Boone, Audra & Broughman, Brian & Macias, Antonio J., 2018. "Shareholder approval thresholds in acquisitions: Evidence from tender offers," Journal of Corporate Finance, Elsevier, vol. 53(C), pages 225-245.
    8. Szu-Yin (Jennifer) Wu & Kee H. Chung, 2022. "Hedge Fund Activism and Corporate M&A Decisions," Management Science, INFORMS, vol. 68(2), pages 1378-1403, February.
    9. Lucian A. Bebchuk & Alon Brav & Wei Jiang & Thomas Keusch, 2019. "Dancing With Activists," NBER Working Papers 26171, National Bureau of Economic Research, Inc.
    10. Aiken, Adam L. & Lee, Choonsik, 2020. "Let's talk sooner rather than later: The strategic communication decisions of activist blockholders," Journal of Corporate Finance, Elsevier, vol. 62(C).
    11. Ruichen Ma, 2023. "The sustainable development trend in environmental, social, and governance issues and stakeholder engagement: Evidence from mergers and acquisitions in China," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(6), pages 3159-3173, November.
    12. Cho, Thummim, 2020. "Turning alphas into betas: arbitrage and endogenous risk," LSE Research Online Documents on Economics 102085, London School of Economics and Political Science, LSE Library.
    13. Armando Gomes, 2024. "Takeovers, Freezeouts, and Risk Arbitrage," Games, MDPI, vol. 15(1), pages 1-27, January.
    14. Burkart, Mike & Lee, Samuel, 2022. "Activism and takeovers," LSE Research Online Documents on Economics 111564, London School of Economics and Political Science, LSE Library.
    15. Schroth, Enrique & Albuquerque, Rui & Fos, Vyacheslav, 2020. "Value creation in Shareholder Activism: A Structural Approach," CEPR Discussion Papers 14995, C.E.P.R. Discussion Papers.
    16. von Lilienfeld-Toal, Ulf & Schnitzler, Jan, 2020. "The anatomy of block accumulations by activist shareholders," Journal of Corporate Finance, Elsevier, vol. 62(C).
    17. Bolton, Patrick & Li, Tao & Ravina, Enrichetta & Rosenthal, Howard, 2020. "Investor ideology," Journal of Financial Economics, Elsevier, vol. 137(2), pages 320-352.
    18. Mike Burkart & Samuel Lee, 2022. "Activism and Takeovers," Review of Financial Studies, Society for Financial Studies, vol. 35(4), pages 1868-1896.
    19. Corum, Adrian Aycan & Levit, Doron, 2019. "Corporate control activism," Journal of Financial Economics, Elsevier, vol. 133(1), pages 1-17.
    20. Cho, Thummim, 2020. "Turning alphas into betas: Arbitrage and endogenous risk," Journal of Financial Economics, Elsevier, vol. 137(2), pages 550-570.
    21. Bebchuk, Lucian A. & Brav, Alon & Jiang, Wei & Keusch, Thomas, 2020. "Dancing with activists," Journal of Financial Economics, Elsevier, vol. 137(1), pages 1-41.
    22. Albuquerque, Rui & Fos, Vyacheslav & Schroth, Enrique, 2022. "Value creation in shareholder activism," Journal of Financial Economics, Elsevier, vol. 145(2), pages 153-178.

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