Investor Protection and the Long-Run Performance of Activism

66 Pages Posted: 12 Nov 2016 Last revised: 13 Jul 2020

See all articles by Pouyan Foroughi

Pouyan Foroughi

York University - Schulich School of Business

Namho Kang

Bentley University - Department of Finance

Gideon Ozik

EDHEC Business School

Ronnie Sadka

Boston College - Carroll School of Management

Date Written: July 1, 2017

Abstract

Using a parsimonious measure of investor protection constructed from fund organizational characteristics, this paper documents that companies targeted by activists with better investor protection structures outperform those targeted by poor-investor-protection activists by roughly 10% per year. The outperformance is observed only for active targets for which 13Ds are filed, but not for passive 13G investments, indicating that the effect is not explained by a superior target selection ability. The evidence suggests that funds with better investor protection achieve increased profitability and valuation ratio of their targets by reducing agency costs, improving corporate governance, and collaborating with other large institutional investors.

Keywords: Activism, Hedge Fund, Investor Protection

JEL Classification: G2, G3

Suggested Citation

Foroughi, Pouyan and Kang, Namho and Ozik, Gideon and Sadka, Ronnie, Investor Protection and the Long-Run Performance of Activism (July 1, 2017). Journal of Financial and Quantitative Analysis (JFQA), Available at SSRN: https://ssrn.com/abstract=2868084 or http://dx.doi.org/10.2139/ssrn.2868084

Pouyan Foroughi (Contact Author)

York University - Schulich School of Business ( email )

111 Ian MacDonald Blvd
North York, Ontario M3J 1P3
Canada

Namho Kang

Bentley University - Department of Finance ( email )

175 Forest Street
Waltham, MA 02154
United States

Gideon Ozik

EDHEC Business School ( email )

Nice
France

Ronnie Sadka

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
192
Abstract Views
1,273
rank
174,530
PlumX Metrics