Activist investor disclosures and firms' information environments

Abstract

Recent theories of shareholder governance predict that large activist investors will make voluntary public disclosures to persuade the board and other investors that implementing their ideas is beneficial to the target firm. We test this prediction using one of the first large-scale datasets of activists' voluntary disclosures about public firms. We find that these disclosures are widely adopted by activists and significantly associated with positive abnormal returns, decreases in bid-ask spreads, and increases in disclosure at the target firms. Additional tests suggest that these findings are justified as the targets of activist disclosures do in fact implement governance changes and improve their performance ex post. Overall, our evidence empirically supports the disclosure prediction of recent governance theories, and highlights a new link between large investors and firms' information environments.

Keywords: Activism; Corporate Disclosure; Corporate Governance; Information Asymmetry

JEL Classification: D21, G30, G32, G34, K22, L22