56 Pages Posted: 12 Sep 2015 Last revised: 18 Feb 2017
Date Written: February 15, 2017
We show that an activist's reputation is a critical determinant of the success of their campaigns. We model reputation as target managers' belief about the activist's willingness to initiate a proxy fight. Our model indicates reputation, rather than stake size, induces managers to settle without a proxy fight. We present empirical evidence supporting our model's predictions: target companies more-frequently increase payouts, change management or board composition, engage in a merger or acquisition, or otherwise reorganize in response to high reputation activist campaigns, while target actions are not sensitive to the activist's stake size.
Keywords: Reputation, investor activism, governance, hedge funds, proxy fights
JEL Classification: G23, G34, G35
Suggested Citation: Suggested Citation