Reputation and Investor Activism
53 Pages Posted: 12 Sep 2015 Last revised: 18 Jan 2018
Date Written: January 15, 2018
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 that managers "settle" with high reputation activists by making changes to corporate policy without a proxy fight. We present empirical evidence supporting our model's predictions: target companies more-frequently change CEOs, replace board members, engage in a merger or acquisition, and initiate major corporate restructuring in response to high reputation activists in campaigns without proxy fights.
Keywords: Reputation, investor activism, governance, hedge funds, proxy fights
JEL Classification: G23, G34, G35
Suggested Citation: Suggested Citation