Where Do Activist Shareholders Trade?

Abstract

Before intervening in corporate governance, an activist needs to acquire a large ownership in a firm, and her information is private until she files Schedule 13D. We analyze how this large informed trader chooses between the lit exchange and the dark pool. We find that (1) the market share of the dark pool increases when an activist trades, (2) dark pool’s market share increases more when the activist’s value of information is higher, and (3) price discovery ahead of a Schedule 13D filing decreases with the activist’s value of information and the historical market share of the dark pool.

Keywords: Shareholder activism, Schedule 13D filing, Dark pool, Rational expectation equilibrium

JEL Classification: G12, G34