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

See all articles by Emmanuel Pezier

Emmanuel Pezier

City University London - Sir John Cass Business School

Date Written: April 2, 2020

Abstract

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

Pezier, Emmanuel, Estimating the Long-Term Effects of Activism Using a Natural Experiment in UK Small-Cap Stocks (April 2, 2020). Available at SSRN: https://ssrn.com/abstract=3400918 or http://dx.doi.org/10.2139/ssrn.3400918

Emmanuel Pezier (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

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