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

Posted: 7 Feb 2010 Last revised: 22 Feb 2010

See all articles by Kyung Suh Park

Kyung Suh Park

Korea University - Department of Finance

Dong Wook Lee

Korea University

Date Written: February 5, 2010

Abstract

(Formerly, Corporate Governance and Firm Value: Endogeneity-Free Evidence from Korea)

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.

Keywords: Institutional activism, Shareholder wealth, Spillovers, Korea corporate governance fund

JEL Classification: G30, G34

Suggested Citation

Park, Kyung Suh and Lee, Dong Wook, Does Institutional Activism Increase Shareholder Wealth? Evidence from Spillovers on Non-Target Companies (February 5, 2010). Journal of Corporate Finance, Vol. 15, No. 4, 2009. Available at SSRN: https://ssrn.com/abstract=1548263

Kyung Suh Park

Korea University - Department of Finance ( email )

Seoul, 136-701
United States

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)

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