Voluntary Disclosure by Activist Shareholders

Abstract

Corporate governance theory models activists as privately informed minority stakeholders who use persuasion over other investors to enact their agendas at their target firms. Consistent with this idea, we find that activists frequently release open letters aimed at other investors that are associated with significant stock price movements, decreased bid-ask spreads, and key activism outcomes such as directorship wins, strategic shifts, and proxy advisor recommendations. Managers commonly respond to activists' letters, thus creating a public debate about their firm's future. These findings suggest that activists use open letters to inform other investors and facilitate change at their targets.

Keywords: Information Asymmetry; Shareholder Activism; Voluntary Disclosure

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