The Costs of Shareholder Activism: Evidence from a Sequential Decision Model

54 Pages Posted: 22 Jul 2010 Last revised: 18 Sep 2012

Nickolay Gantchev

University of North Carolina Kenan-Flagler Business School

Date Written: August 12, 2012

Abstract

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.

Keywords: Shareholder activism, Hedge funds, Institutional investors, Monitoring, Corporate Governance

JEL Classification: G23, G32, G34

Suggested Citation

Gantchev, Nickolay, The Costs of Shareholder Activism: Evidence from a Sequential Decision Model (August 12, 2012). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1646471 or http://dx.doi.org/10.2139/ssrn.1646471

Nickolay Gantchev (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
919-962-4926 (Phone)
919-962-2068 (Fax)

HOME PAGE: http://sites.google.com/site/nickolaygantchev/

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