Influencing Control: Jawboning in Risk Arbitrage

72 Pages Posted: 1 Apr 2015 Last revised: 3 Dec 2017

See all articles by Wei Jiang

Wei Jiang

Columbia Business School - Finance and Economics

Tao Li

University of Florida - Department of Finance, Insurance and Real Estate

Danqing Mei

Columbia University - Columbia Business School

Date Written: April 2, 2016

Abstract

In an "activist risk arbitrage," a shareholder attempts to reshape an announced M&A through public campaigns, profi ting from improved terms. Activists target deals with low premiums, and those susceptible to managerial conflicts of interest, including going-private deals and deals upon which CEOs receive outsized payments. Activist arbitrageurs are associated with a significant decrease in the probability that targets will be sold to the announced bidders, and an increase in the paid premium, both ex post on surviving deals and ex ante on all deals. Activist arbitrage serves as a governance mechanism in M&A and earns higher returns than passive arbitrage.

Keywords: Activist Risk Arbitrage; M&A; Governance

JEL Classification: G23, G34

Suggested Citation

Jiang, Wei and Li, Tao and Mei, Danqing, Influencing Control: Jawboning in Risk Arbitrage (April 2, 2016). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2587925 or http://dx.doi.org/10.2139/ssrn.2587925

Wei Jiang

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States
(212) 854-5553 (Phone)

Tao Li (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

Warrington College of Business
Gainesville, FL 32611
United States

HOME PAGE: http://warrington.ufl.edu/contact/profile.asp?WEBID=7628

Danqing Mei

Columbia University - Columbia Business School ( email )

NY
United States

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