Does Institutional Activism Increase Shareholder Wealth?: Evidence from Spillovers on Non-Target Companies

Journal of Corporate Finance, pp. 488-504, 2009

43 Pages Posted: 16 Jul 2007 Last revised: 24 May 2011

See all articles by Dong Wook Lee

Dong Wook Lee

Korea University

Kyung Suh Park

Korea University - Department of Finance

Date Written: July 9, 2007

Abstract

This paper presents evidence of the shareholder wealth effect of institutional activism using its spillovers on non-target companies. The spillovers are instructive because they are a response to an exogenous shock and thus create an environment to conduct a clean event study. In particular, we examine the spillover effects of the first target announcement of the Korea Corporate Governance Fund. As the very first sign of institutional activism in the country, this announcement creates an expectation of similar governance efforts even in non-target companies, especially in those companies whose governance is currently poorer and thus the scope for future activism is greater. Consistent with institutional activism contributing to shareholder wealth, we find that, among non-targets, those firms granting fewer rights to outside shareholders experience a more positive stock price reaction. Further analysis lends additional support to the positive wealth effect of institutional activism.

(This paper is a significantly revised version of the paper titled "Corporate governance and firm value: Endogeneity-free evidence from Korea" (co-authored with Jung Yong Choi). The final working paper version is linked to this page.)

Keywords: Governance, Firm value, Endogeneity, Korean Corporate Governance Fund

JEL Classification: G30, G34

Suggested Citation

Lee, Dong Wook and Park, Kyung Suh, Does Institutional Activism Increase Shareholder Wealth?: Evidence from Spillovers on Non-Target Companies (July 9, 2007). Journal of Corporate Finance, pp. 488-504, 2009. Available at SSRN: https://ssrn.com/abstract=1000834

Dong Wook Lee (Contact Author)

Korea University ( email )

1 Anam-dong 5 ka
Seoul, 136-701
Korea, Republic of (South Korea)
+82.2.3290.2820 (Phone)
+82.2.3290.1307 (Fax)

Kyung Suh Park

Korea University - Department of Finance ( email )

Seoul, 136-701
United States

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