Estimating the Long-Term Effects of Activism Using a Natural Experiment in UK Small-Cap Stocks
57 Pages Posted: 12 Jun 2019 Last revised: 6 May 2020
Date Written: April 2, 2020
Activist shareholders appear to play an important role in long-term firm performance, but identifying this empirically remains challenging. We examine a large private dataset of engagements with UK smaller companies from 2008-2015 that allows us to separate selection from treatment effects. Our activist: (1) receives a blind portfolio; (2) has low incentives, financial resources and activism tools; (3) engages alone, behind-the-scenes and for the long-term; and (4) deals in illiquid under-researched firms. Controlling for selection effects, our activist’s engagements generate positive annual IRRs for the period (+1.4%), especially in confrontational situations (+4.9%), and have persistent impacts on firms’ operating performance.
Keywords: shareholder activism, institutional investors, corporate governance, behind-the-scenes engagements, real authority, clinical study, natural experiment
JEL Classification: G14, G23, G3
Suggested Citation: Suggested Citation