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Reputation and Investor Activism

56 Pages Posted: 12 Sep 2015 Last revised: 18 Feb 2017

Travis L. Johnson

The University of Texas at Austin - Department of Finance

Nathan Swem

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: February 15, 2017

Abstract

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

Johnson, Travis L. and Swem, Nathan, Reputation and Investor Activism (February 15, 2017). Available at SSRN: https://ssrn.com/abstract=2658765 or http://dx.doi.org/10.2139/ssrn.2658765

Travis L. Johnson (Contact Author)

The University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States

HOME PAGE: http://faculty.mccombs.utexas.edu/johnson

Nathan Swem

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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