The Costs of Shareholder Activism: Evidence from a Sequential Decision Model
University of North Carolina Kenan-Flagler Business School
August 12, 2012
Journal of Financial Economics (JFE), Forthcoming
This paper provides benchmarks for monitoring costs and evaluates the net returns to shareholder activism. I model activism as a sequential decision process consisting of demand negotiations, board representation, and proxy contest and estimate the costs of each activism stage. A campaign ending in a proxy fight has average costs of $10.71 million. I find that the estimated monitoring costs reduce activist returns by more than two-thirds. The mean net activist return is close to zero but the top quartile of activists earns higher returns on their activist holdings than on their non-activist investments. The large-sample evidence presented in this paper aids in understanding the nature and evolution of activist engagements.
Number of Pages in PDF File: 54
Keywords: Shareholder activism, Hedge funds, Institutional investors, Monitoring, Corporate Governance
JEL Classification: G23, G32, G34
Date posted: July 22, 2010 ; Last revised: September 18, 2012
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