Activism and Takeovers
65 Pages Posted: 28 Mar 2015 Last revised: 3 Oct 2019
Date Written: September 20, 2019
Buying and campaigning for control encounter different forms of free-riding in widely held firms. From this we derive a comparative theory of disciplinary governance interventions: First, changes in the marginal return to effort have opposite effects on bidder profits and activist profits, so activism can outperform hostile bids despite being less efficient. Second, activists are more effective brokering takeovers than restructuring firms themselves. Third, such takeover activists earn excess returns in part because their hurdle rate is the foregone return from free-riding on hostile bids. Our predictions match evidence on takeover activism and activist hedge funds’ performance.
Keywords: free-rider problem, hedge fund activism, takeover activism, tender offers, market for corporate control, blockholders, M&A
JEL Classification: G34, G23
Suggested Citation: Suggested Citation