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Reputation and investor activism: A structural approach

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  • Johnson, Travis L.
  • Swem, Nathan

Abstract

We measure the impact of reputation for proxy fighting on investor activism by estimating a dynamic model in which activists engage a sequence of target firms. Our estimation produces an evolving reputation measure for each activist and quantifies its impact on campaign frequency and outcomes. We find that high reputation activists initiate 3.5 times as many campaigns and extract 85% more settlements from targets, and that reputation-building incentives explain 20% of campaign initiations and 19% of proxy fights. Our estimates indicate these reputation effects combine to nearly double the value that activism adds for target shareholders.

Suggested Citation

  • Johnson, Travis L. & Swem, Nathan, 2021. "Reputation and investor activism: A structural approach," Journal of Financial Economics, Elsevier, vol. 139(1), pages 29-56.
  • Handle: RePEc:eee:jfinec:v:139:y:2021:i:1:p:29-56
    DOI: 10.1016/j.jfineco.2020.07.005
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    More about this item

    Keywords

    Investor activism; Reputation; Governance; Hedge funds; Structural estimation;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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