Download This PaperActivism and Empire Building
Journal of Financial Economics (JFE), Forthcoming
European Corporate Governance Institute (ECGI) - Finance Working Paper No. 575/2018
Kenan Institute of Private Enterprise Research Paper No. 18-23
70 Pages Posted: 1 Nov 2017 Last revised: 11 Sep 2019
Date Written: August 28, 2019
Abstract
Hedge fund activists target firms engaging in empire building and improve their future acquisition and divestiture strategy. Following intervention, activist targets make fewer acquisitions but obtain substantially higher returns by avoiding large and diversifying deals and refraining from acquisitions during merger waves. Activist targets also increase the pace of divestitures and achieve higher divestiture returns than matched non-targets. Activists curtail empire building through the removal of empire building CEOs, compensation based incentives, and appointment of new board members. Our findings highlight an important channel through which activists improve efficiency and create shareholder value.
Keywords: shareholder activism, corporate governance, mergers and acquisitions, empire building, hedge funds
JEL Classification: G14, G23, G34
Suggested Citation: Suggested Citation
European Corporate Governance Institute (ECGI) ( email )
HOME PAGE: http://ecgi.global/users/nickolay-gantchev
Anil Shivdasani
University of North Carolina Kenan-Flagler Business School ( email )
Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
919-962-3182 (Phone)
919-962-2068 (Fax)