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The costs of shareholder activism: Evidence from a sequential decision model

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  • Gantchev, Nickolay
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    Abstract

    This paper provides benchmarks for monitoring costs and evaluates the net returns to shareholder 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. A campaign ending in a proxy fight has average costs of $10.71 million. I find that the estimated monitoring costs reduce activist returns by more than two-thirds. The mean net activist return is close to zero but the top quartile of activists earns higher returns on their activist holdings than on their non-activist investments. The large-sample evidence presented in this paper aids in understanding the nature and evolution of activist engagements.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 107 (2013)
    Issue (Month): 3 ()
    Pages: 610-631

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    Handle: RePEc:eee:jfinec:v:107:y:2013:i:3:p:610-631

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    Web page: http://www.elsevier.com/locate/inca/505576

    Related research

    Keywords: Shareholder activism; Hedge funds; Institutional investors; Monitoring; Corporate governance;

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    Cited by:
    1. Kerry Back & Tao Li & Alexander Ljungqvist, 2013. "Liquidity and Governance," NBER Working Papers 19669, National Bureau of Economic Research, Inc.
    2. Vicente Cunat & Mireia Gine & Maria Guadalupe, 2013. "Say Pays! Shareholder Voice and Firm Performance," Upjohn Working Papers and Journal Articles 13-192, W.E. Upjohn Institute for Employment Research.

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