Value Creation in Shareholder Activism: A Structural Approach
86 Pages Posted: 28 Jul 2020 Last revised: 7 Sep 2020
Date Written: July 2020
We model an investor's choice between filing Schedules 13D and 13G and use the model to estimate expected returns to activist and passive investing. Using the model, we decompose average Schedule 13D filing announcement returns into treatment (75.2%), stock picking (12.2%), and sample selection components (12.6%). The treatment component of Schedule 13D announcement returns predicts improvements in firm performance and a lower probability of a proxy contest, suggesting that our estimate of the treatment component identifies more effective activism campaigns. Counterfactual analysis shows that if all investors shared the private cost of activism, a large fraction of Schedule 13G filings would have been filed as Schedule 13D, resulting in substantial firm value gains.
Keywords: Passive investors, Shareholder activism, Stock picking, structural estimation, value creation
JEL Classification: C34, G14, G34
Suggested Citation: Suggested Citation