49 Pages Posted: 3 Oct 2015 Last revised: 24 Mar 2017
Date Written: March 23, 2017
We examine the relation between shareholder activism and voluntary disclosure. An important consequence of voluntary disclosure is reduced adverse selection in the capital markets. One class of traders that finds less adverse selection unprofitable is activist investors who target mispriced firms whose valuations they can improve. Consistent with this idea, we find that managers issue earnings and sales forecasts more frequently when their firm is more at risk of attack by activist investors, and that these additional disclosures reduce the likelihood of becoming an activist's target. These additional disclosures also prompt a positive price reaction, contain more precise guidance, and exceed prevailing market expectations. These findings imply that managers use voluntary disclosure to preempt activism at their firm, and that activists prefer to target relatively opaque firms.
Keywords: Corporate Disclosure, Corporate Governance, Shareholder Activism
JEL Classification: G10, G34, M41
Suggested Citation: Suggested Citation