Managed Distribution Policies in Closed-End Funds and Shareholder Activism

42 Pages Posted: 2 Nov 2012  

Martin Cherkes

NYU

Jacob S. Sagi

University of North Carolina Kenan-Flagler Business School

Zhi Jay Wang

University of Oregon - Charles H. Lundquist School of Business

Date Written: November 1, 2012

Abstract

A Managed Distribution Policy (MDP), where investments might be partially liquidated to increase investors' cash flows, can lower the value of manager's claim on asset payoffs. This is a direct transfer of wealth from the management to the shareholders, and might be adopted by managers to deter attacks from activist shareholders. Our empirical tests on a panel of 236 closed-end funds provide strong evidence that managers respond to the presence of activists using MDPs, that this indeed constitutes an effective wealth transfer to shareholders, and that economic fundamentals (asset liquidity, share liquidity, managerial compensation) are key to understanding these effects.

Keywords: Managed distribution, closed-end funds

JEL Classification: G12

Suggested Citation

Cherkes, Martin and Sagi, Jacob S. and Wang, Zhi Jay, Managed Distribution Policies in Closed-End Funds and Shareholder Activism (November 1, 2012). Available at SSRN: https://ssrn.com/abstract=2170094 or http://dx.doi.org/10.2139/ssrn.2170094

Martin Cherkes (Contact Author)

NYU ( email )

44 West 4th Street
New York, NY NY 10012
United States

Jacob Sagi

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

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

HOME PAGE: http://public.kenan-flagler.unc.edu/faculty/sagij/

Zhi Jay Wang

University of Oregon - Charles H. Lundquist School of Business ( email )

1208 University of Oregon
Eugene, OR 97403-1208
United States

Paper statistics

Downloads
114
Rank
200,437
Abstract Views
669