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Returns to Shareholder Activism

Author

Listed:
  • 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.

Suggested Citation

  • Marco Becht & Julian Franks & Colin Mayer & Stefano Rossi, 2008. "Returns to Shareholder Activism," OFRC Working Papers Series 2008fe07, Oxford Financial Research Centre.
  • Handle: RePEc:sbs:wpsefe:2008fe07
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    File URL: http://www.finance.ox.ac.uk/file_links/finecon_papers/2008fe07.pdf
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    Cited by:

    1. Lucian A. Bebchuk & Michael S. Weisbach, 2010. "The State of Corporate Governance Research," NBER Chapters,in: Corporate Governance National Bureau of Economic Research, Inc.
    2. Neil Conway & Simon Deakin & Suzanne Konzelmann & Héloïse Petit & Antoine Rebérioux & Frank Wilkinson, 2008. "The Influence of Stock Market Listing on Human Resource Management: Evidence for France and Britain," British Journal of Industrial Relations, London School of Economics, vol. 46(4), pages 631-673, December.
    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. 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.

    More about this item

    Keywords

    Shareholder activism; institutional investors; real authority;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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