Not All Threats are Taken Equally: Evidence from Proxy Fights

24 Pages Posted: 20 May 2020

See all articles by Fang Chen

Fang Chen

University of New Haven

Lijing Du

Towson University - Department of Finance

Susan Flaherty

Towson University

Jian Huang

Towson University - College of Business and Economics

Gokhan Torna

SUNY at Stony Brook University - College of Business

Date Written: February 2020

Abstract

Previous research shows that activist threats lead to corporate policy concessions. We find that the threat of proxy fights is responded to differently based on its credibility. Decomposing proxy fight threats, we find that only credible threats are associated with more leveraged, more innovative, and less acquisitive corporate policies. Management, however, does not respond to noncredible threats. Further, for materialized fights, the market reaction at announcement is also conditional on the credibility of the threats. Overall, not all activist threats are responded to equally by management or the market, and only credible threats achieve disciplinary effects and favorable valuation.

Keywords: activist threats, credible threats, disciplinary effects, market reaction, noncredible threats, proxy fights

JEL Classification: G14, G31, G34, G35

Suggested Citation

Chen, Fang and Du, Lijing and Flaherty, Susan and Huang, Jian and Torna, Gokhan, Not All Threats are Taken Equally: Evidence from Proxy Fights (February 2020). Financial Review, Vol. 55, Issue 1, pp. 145-168, 2020, Available at SSRN: https://ssrn.com/abstract=3601160 or http://dx.doi.org/10.1111/fire.12220

Fang Chen (Contact Author)

University of New Haven

300 Orange Avenue
West Haven, CT 06516
United States

Lijing Du

Towson University - Department of Finance ( email )

8000 York Road
Towson, MD 21252
United States

Susan Flaherty

Towson University

Jian Huang

Towson University - College of Business and Economics ( email )

8000 York Road
Towson, MD 21252
United States
410-704-3547 (Phone)
410-704-3454 (Fax)

Gokhan Torna

SUNY at Stony Brook University - College of Business ( email )

250 Harriman Hall
Stony Brook, NY 11777
United States
631-632-5304 (Phone)
631-632-9412 (Fax)

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