Value Creation in Shareholder Activism
74 Pages Posted: 7 Jul 2020 Last revised: 16 Apr 2021
Date Written: April 9, 2021
We measure value creation by activist investors via structural estimation of a model of the choice between passive investment and activism. Our estimates imply that average returns following activist intent announcements consist of 74.8% expected value creation, or treatment, 13.4% stock picking, and 11.8% sample selection effects. Higher treatment values predict improvements in firm performance and lower proxy contest probabilities, whereas abnormal announcements returns do not, suggesting that our estimate identifies more effective activism campaigns. The evidence demonstrates the importance of using the joint distribution of investment strategies and announcement returns to recover the expected returns and costs of activism.
Keywords: Shareholder activism, Value creation, Passive investors, Stock picking, Schedule 13D, Schedule 13G, Structural estimation
JEL Classification: C34, G14, G34
Suggested Citation: Suggested Citation