Dancing with Activists

77 Pages Posted: 9 Sep 2019

See all articles by Lucian A. Bebchuk

Lucian A. Bebchuk

Harvard Law School; European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Alon Brav

Duke University - Fuqua School of Business; European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Wei Jiang

Columbia Business School - Finance and Economics; ECGI; NBER

Thomas Keusch

INSEAD

Multiple version iconThere are 2 versions of this paper

Date Written: August 2019

Abstract

An important milestone often reached in the life of an activist engagement is entering into a “settlement” agreement between the activist and the target’s board. Using a comprehensive hand-collected data set, we analyze the drivers, nature, and consequences of such settlement agreements. Settlements are more likely when the activist has a credible threat to win board seats in a proxy fight and when incumbents’ reputation concerns are stronger. Consistent with incomplete contracting, face-saving benefits and private information considerations, settlements commonly do not contract directly on operational or leadership changes sought by the activist but rather on board composition changes. Settlements are accompanied by positive stock price reactions, and they are subsequently followed by changes of the type sought by activists, including CEO turnover, higher shareholder payouts, and improved operating performance. We find no evidence to support concerns that settlements enable activists to extract rents at the expense of other investors. Our analysis provides a look into the “black box” of activist engagements and contributes to understanding how activism brings about changes in target companies.

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Suggested Citation

Bebchuk, Lucian A. and Brav, Alon and Jiang, Wei and Keusch, Thomas, Dancing with Activists (August 2019). NBER Working Paper No. w26171, Available at SSRN: https://ssrn.com/abstract=3450242

Lucian A. Bebchuk (Contact Author)

Harvard Law School ( email )

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United States
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HOME PAGE: http://www.law.harvard.edu/faculty/bebchuk/

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National Bureau of Economic Research (NBER) ( email )

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Alon Brav

Duke University - Fuqua School of Business ( email )

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919-684-2818 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Wei Jiang

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States
(212) 854-5553 (Phone)

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Thomas Keusch

INSEAD ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

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