Activist Settlements

116 Pages Posted: 5 Dec 2017 Last revised: 17 Apr 2023

See all articles by Adrian Aycan Corum

Adrian Aycan Corum

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: January 29, 2023


I provide a theoretical framework of settlements between activist investors and boards. The activist can demand that his proposal be implemented right away ("action settlement") or demand board seats ("board settlement"). If rejected, the activist can launch a proxy fight. Contrary to common concerns, value-destroying projects are typically not implemented following settlements, but rather after the activist wins proxy fights with shareholders' endogenous support. Yet, shareholders' support may be too low to maximize ex-ante shareholder value. Nevertheless, settlements may hurt shareholders even if the activist implements only value-creating projects. Related, even though the average ex-post shareholder value is higher upon reaching an action settlement than upon reaching a board settlement, making it more difficult to reach board settlements (and thus incentivizing the activist to demand an action settlement instead) can still harm shareholders. The model yields several additional predictions consistent with existing empirical evidence.

Keywords: Allocation of Control, Authority, Bargaining, Boards of Directors, Corporate Governance, Settlement, Shareholder Activism, Shareholder Voting, Voice.

JEL Classification: C70, C78, D72, D74, D82, G23, G34

Suggested Citation

Corum, Adrian Aycan, Activist Settlements (January 29, 2023). Available at SSRN: or

Adrian Aycan Corum (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

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Ithaca, NY 14853
United States

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