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Value of outside blockholder activism: Evidence from the switchers

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  • Kim, Woochan
  • Kim, Woojin
  • Kwon, Kap-Sok

Abstract

This paper measures the value of shareholder activism focusing on outside blockholders who switch their investment purpose from passive to active but are not likely to engage in control-related activities. Unlike the usual 5% ownership disclosure, a switch does not necessarily involve additional share purchase, and thus provides a cleaner test in effectively ruling out alternative theories such as those related to stock picking skills, private information, or herding. We apply the test to outside blockholders in the Korean market, which experienced a concentrated number of switchers in the first half of 2005 when the government adopted a new disclosure rule. We find that target price reaction is significantly positive around the time of the switch disclosure and this effect is more pronounced when the switcher declares to use a wider scope of activist measures. Following the switch, we also find evidence of increases in dividend payouts for firms targeted by switchers with a wider scope of activism, and those with high free cash flows.

Suggested Citation

  • Kim, Woochan & Kim, Woojin & Kwon, Kap-Sok, 2009. "Value of outside blockholder activism: Evidence from the switchers," Journal of Corporate Finance, Elsevier, vol. 15(4), pages 505-522, September.
  • Handle: RePEc:eee:corfin:v:15:y:2009:i:4:p:505-522
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    Cited by:

    1. Kim, Min-Su & Kim, Woojin & Lee, Dong Wook, 2015. "Stock return commonality within business groups: Fundamentals or sentiment?," Pacific-Basin Finance Journal, Elsevier, pages 198-224.
    2. Aslan, Hadiye & Kumar, Praveen, 2016. "The product market effects of hedge fund activism," Journal of Financial Economics, Elsevier, vol. 119(1), pages 226-248.
    3. Albert Irawan, 2014. "Factors that Determines the Success of Business Demon Value Added Management," Business and Economic Research, Macrothink Institute, pages 319-350.
    4. Kim, Woochan & Sung, Taeyoon & Wei, Shang-Jin, 2017. "The diffusion of corporate governance to emerging markets: Evaluating two dimensions of investor heterogeneity," Journal of International Money and Finance, Elsevier, vol. 70(C), pages 406-432.
    5. 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.
    6. 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.

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