Activism and Empire Building

42 Pages Posted: 1 Nov 2017 Last revised: 27 Jan 2019

See all articles by Nickolay Gantchev

Nickolay Gantchev

Southern Methodist University (SMU) - Finance Department; European Corporate Governance Institute (ECGI)

Merih Sevilir

Indiana University - Kelley School of Business - Department of Finance

Anil Shivdasani

University of North Carolina Kenan-Flagler Business School

Date Written: September 8, 2018

Abstract

We study the role of hedge fund activists in curbing empire building. We show that firms with poor acquisition records are more likely to become activist targets. Following activist intervention, targeted firms make fewer acquisitions but obtain substantially higher abnormal returns. These firms avoid large transactions, diversifying deals, and refrain from announcing deals during merger waves. After an activist campaign, targets increase the pace of divestitures and achieve higher announcement and long-term returns from divestitures than firms without activist intervention. Our results are consistent with a treatment effect whereby the activists’ interventions both improve their targets’ acquisition strategy and lower reluctance to divest assets. Our findings highlight an important channel through which activists improve the efficiency of public companies.

Keywords: Shareholder activism, mergers and acquisitions, corporate governance, empire building, hedge funds

JEL Classification: G14, G23, G34

Suggested Citation

Gantchev, Nickolay and Sevilir, Merih and Shivdasani, Anil, Activism and Empire Building (September 8, 2018). Kelley School of Business Research Paper No. 17-74; SMU Cox School of Business Research Paper No. 18-10; European Corporate Governance Institute (ECGI) - Finance Working Paper No. 575/2018; Kenan Institute of Private Enterprise Research Paper No. 18-23. Available at SSRN: https://ssrn.com/abstract=3062998 or http://dx.doi.org/10.2139/ssrn.3062998

Nickolay Gantchev (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States
214-768-4128 (Phone)

European Corporate Governance Institute (ECGI) ( email )

HOME PAGE: http://www.ecgi.org

Merih Sevilir

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

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)

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