Abstract

http://ssrn.com/abstract=2417227
 


 



An Evaluation of Shareholder Activism


Barbara G. Katz


Leonard N. Stern School of Business - Department of Economics

Joel Owen


New York University (NYU) - Department of Information, Operations, and Management Sciences

March 2014

NYU Working Paper No. 2451/33577

Abstract:     
We develop a method to evaluate shareholder activism when an activist targets firms whose shareholders are diversified portfolio holders of possibly correlated firms. Our method of evaluation takes the portfolios of all of the shareholders, including the activist, as its basis of analysis. We model the activist from the time of the acquisition of a foothold in the target firm through the moment when the activist divests the newly acquired shares. We assume that during this period, all exchanges of securities, and their corresponding prices, are achieved in Walrasian markets in which all participants, including the activist, are risk-averse price-takers. Using the derived series of price changes of all the firms in the market, as well as the derived series of changes in all the portfolio holdings over this period, we evaluate the impact of activism on the activist, on the group of other shareholders, and on the combined group. We show that when activism is beneficial to the activist, the group of other investors may not benefit; furthermore, even when the activist benefits from activism, the value of the market may decrease. When the activist benefits from activism, an increase in the value of the market is a necessary but not sufficient condition for the group of other investors to benefit also from activism. In addition, we show that the combined group, the activist plus the group of other investors, benefits if and only if the value of the market increases and, under this condition, either the activist or the group of other investors, but not necessarily both, benefits.

Number of Pages in PDF File: 35

Keywords: shareholder activism, activism, evaluation of activism,, hedge funds, corporate governance, diversified portfolios

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Date posted: March 28, 2014  

Suggested Citation

Katz, Barbara G. and Owen, Joel, An Evaluation of Shareholder Activism (March 2014). NYU Working Paper No. 2451/33577. Available at SSRN: http://ssrn.com/abstract=2417227

Contact Information

Barbara G. Katz (Contact Author)
Leonard N. Stern School of Business - Department of Economics ( email )
44 West Fourth Street, 7-180
Suite 7-90
New York, NY 10012
United States
212-998-0865 (Phone)
212-995-4218 (Fax)
Joel Owen
New York University (NYU) - Department of Information, Operations, and Management Sciences ( email )
44 West 4th Street
Room 8-160
New York, NY 10012-0258
United States
212-998-0446 (Phone)
212-995-4003 (Fax)
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