Activism and Empire Building

70 Pages Posted: 1 Nov 2017 Last revised: 11 Sep 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: 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

Gantchev, Nickolay and Sevilir, Merih and Shivdasani, Anil, Activism and Empire Building (August 28, 2019). 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; Kelley School of Business Research Paper No. 17-74; SMU Cox School of Business Research Paper No. 18-10. 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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