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Returns to Shareholder Activism

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Author Info

  • Marco Becht
  • Julian Franks
  • Colin Mayer
  • Stefano Rossi

Abstract

This article reports a unique analysis of private engagements by an activist fund. It is based on data made available to us by Hermes, the fund manager owned by the British Telecom Pension Scheme (BTPS), on engagements with management in companies targeted by its U.K. Focus Fund (HUKFF). In contrast with most previous studies of activism, we report that the fund executes shareholder activism predominantly through private interventions that would be unobservable in studies purely relying on public information. The fund substantially outperforms benchmarks and we estimate that abnormal returns are largely associated with engagements rather than stock picking. We categorize the engagements and measure their impact on the returns of target companies and the fund. We find that Hermes frequently seeks and achieves significant changes in the company’s strategy including refocusing on the core business and returning cash to shareholders, and changes in the executive management including the replacement of the CEO or chairmen.

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Bibliographic Info

Paper provided by Oxford Financial Research Centre in its series OFRC Working Papers Series with number 2008fe07.

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Length: 52
Date of creation: 2008
Date of revision:
Handle: RePEc:sbs:wpsefe:2008fe07

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Web page: http://www.finance.ox.ac.uk
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Related research

Keywords: Shareholder activism; institutional investors; real authority;

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Cited by:
  1. Cziraki, P. & Renneboog, L.D.R. & Szilagyi, P.G., 2009. "Shareholder Activism through Proxy Proposals: The European Perspective," Discussion Paper 2009-44, Tilburg University, Center for Economic Research.
  2. Neil Conway & Simon Deakin & Suzzanne J. Konzelmann & Héloïse Petit & Antoine Rebérioux & Frank Wilkinson, 2008. "The Influence of Stock Market Listing on Human Resource Managment: Evidence for France and Britain," ESRC Centre for Business Research - Working Papers wp366, ESRC Centre for Business Research.
  3. Henrik Cronqvist & Rüdiger Fahlenbrach, 2009. "Large Shareholders and Corporate Policies," Review of Financial Studies, Society for Financial Studies, vol. 22(10), pages 3941-3976, October.
  4. Szilagyi, P.G., 2007. "Corporate Governance and the Agency Costs of Debt and Outside Equity," Open Access publications from Tilburg University urn:nbn:nl:ui:12-321510, Tilburg University.
  5. Lucian A. Bebchuk & Michael S. Weisbach, 2010. "The State of Corporate Governance Research," NBER Chapters, in: Corporate Governance National Bureau of Economic Research, Inc.
  6. Renneboog, L.D.R. & Horst, J.R. ter & Zhang, C., 2007. "The Price of Ethics: Evidence from Socially Responsible Mutual Funds," Discussion Paper 2007-012, Tilburg University, Tilburg Law and Economic Center.
  7. Gantchev, Nickolay, 2013. "The costs of shareholder activism: Evidence from a sequential decision model," Journal of Financial Economics, Elsevier, vol. 107(3), pages 610-631.

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