Can the market identify prosperous activist engagements? Evidence from announcement and long-term buy-and-hold returns

TAF Working Paper No. 66 / January 2022

38 Pages Posted: 9 Mar 2021 Last revised: 22 Feb 2022

See all articles by Jochen Hartmann

Jochen Hartmann

Paderborn University

Matthias Pelster

Paderborn University

Soenke Sievers

TRR 266 Accounting for Transparency; Paderborn University

Date Written: March 8, 2021

Abstract

We document a discrepancy between abnormal announcement returns (CAARs) and two-year buy-and-hold abnormal returns (BHARs) of activist engagements. Activist targets that earn the highest two-year BHARs do not yield significantly higher CAARs around engagement announcements than the remaining targets. This indicates that financial markets cannot distinguish between long-term top-performing engagements and other engagements at the announcement of an engagement. Even the best activists frequently suffer low or negative two-year BHARs. Short-term CAARs around engagement announcements are linked to activist characteristics, whereas long-term results are not. Long-term top-performing targets have significantly different firm characteristics compared to the remaining targets. However, activists do not solely engage in such targets, and financial markets are unable to initially identify such firms. Thus, we conclude that the long-term performance of target firms seems to be driven by a combination of target firm characteristics, investor skills, and luck, but such performance provides no reasonable follow-on investment strategy for investors.

Keywords: shareholder activism, international evidence, hedge funds, non-hedge fund activism, institutional investors

JEL Classification: G34, G23, G15

Suggested Citation

Hartmann, Jochen and Pelster, Matthias and Sievers, Soenke, Can the market identify prosperous activist engagements? Evidence from announcement and long-term buy-and-hold returns (March 8, 2021). TAF Working Paper No. 66 / January 2022, Available at SSRN: https://ssrn.com/abstract=3800001 or http://dx.doi.org/10.2139/ssrn.3800001

Jochen Hartmann

Paderborn University ( email )

Warburger Str. 100
Paderborn, 33098
Germany

Matthias Pelster (Contact Author)

Paderborn University

Warburger Str. 100
Paderborn, 33098
Germany

Soenke Sievers

TRR 266 Accounting for Transparency ( email )

Warburger Straße 100
Paderborn, 33098
Germany

Paderborn University ( email )

Warburger Str. 100
Paderborn, 33098
Germany

HOME PAGE: http://www.upb.de/accounting

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