Activism and Takeovers

61 Pages Posted: 28 Mar 2015 Last revised: 19 Mar 2019

See all articles by Mike Burkart

Mike Burkart

Swedish House of Finance; London School of Economics and Political Science, Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Samuel Lee

Santa Clara University - Leavey School of Business; European Corporate Governance Institute (ECGI); Swedish House of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: March 3, 2019

Abstract

Buying and campaigning for control encounter different forms of free-riding behavior in widely held firms. We derive implications of this difference in a model with effort provision: First, changes in the marginal return to effort move bidder profits and activist profits in opposite directions, so activism can outperform tender offers despite being less efficient. Second, activists are more effective brokering takeovers than restructuring firms themselves. Third, such takeover activists earn excess returns in part since their hurdle rate is the foregone return from free-riding in tender offers. These 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

Burkart, Mike C. and Lee, Samuel, Activism and Takeovers (March 3, 2019). Swedish House of Finance Research Paper No. 15-04; European Corporate Governance Institute (ECGI) - Finance Working Paper No. 543/2018. Available at SSRN: https://ssrn.com/abstract=2585836 or http://dx.doi.org/10.2139/ssrn.2585836

Mike C. Burkart

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

London School of Economics and Political Science, Department of Finance ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

HOME PAGE: http://www.cepr.org/default_static.htm

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Samuel Lee (Contact Author)

Santa Clara University - Leavey School of Business

500 El Camino Real
Santa Clara, CA California 95053
United States

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

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