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Does institutional activism increase shareholder wealth? Evidence from spillovers on non-target companies

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  • Lee, Dong Wook
  • Park, Kyung Suh
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    Abstract

    This paper presents evidence of the shareholder wealth effect of institutional activism using its spillovers on non-target companies. The spillovers are instructive because they are a response to an exogenous shock and thus create an environment to conduct a clean event study. In particular, we examine the spillover effects of the first target announcement of the Korea Corporate Governance Fund. As the very first sign of institutional activism in the country, this announcement creates an expectation of similar governance efforts even in non-target companies, especially in those companies whose governance is currently poorer and thus the scope for future activism is greater. Consistent with institutional activism contributing to shareholder wealth, we find that, among non-targets, those firms granting fewer rights to outside shareholders experience a more positive stock price reaction. Further analysis lends additional support to the positive wealth effect of institutional activism.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Corporate Finance.

    Volume (Year): 15 (2009)
    Issue (Month): 4 (September)
    Pages: 488-504

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    Handle: RePEc:eee:corfin:v:15:y:2009:i:4:p:488-504

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    Web page: http://www.elsevier.com/locate/jcorpfin

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    Keywords: Institutional activism Shareholder wealth Spillovers Korea corporate governance fund;

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    Cited by:
    1. Bajo, Emanuele & Barbi, Massimiliano & Bigelli, Marco & Hillier, David, 2013. "The role of institutional investors in public-to-private transactions," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4327-4336.
    2. Hwang, Lee-Seok & Kim, Hakkon & Park, Kwangwoo & Park, Rae Soo, 2013. "Corporate governance and payout policy: Evidence from Korean business groups," Pacific-Basin Finance Journal, Elsevier, vol. 24(C), pages 179-198.
    3. Tung-Hao Lee & Jiun-Kai Huang, 2013. "Financial Liberalization, Foreign Ownership and Corporate Operational Efficiency: The Case of Taiwan Market," Review of Economics & Finance, Better Advances Press, Canada, vol. 3, pages 34-47, August.
    4. Kim, Woochan & Sung, Taeyoon & Wei, Shang-Jin, 2014. "The Diffusion of Corporate Governance to Emerging Markets: Evaluating Two Dimensions of Investor Heterogeneity," MPRA Paper 56485, University Library of Munich, Germany.
    5. Burns, Natasha & Kedia, Simi & Lipson, Marc, 2010. "Institutional ownership and monitoring: Evidence from financial misreporting," Journal of Corporate Finance, Elsevier, vol. 16(4), pages 443-455, September.
    6. Barbara Katz & Joel Owen, 2013. "Activism's Impact on Diversified Investors and the Market," Working Papers 13-01, New York University, Leonard N. Stern School of Business, Department of Economics.

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