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Returns to Shareholder Activism

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

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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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
Contact details of provider: Web page: http://www.finance.ox.ac.uk
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