Re(Purchasing) Activist Clientele

Abstract

Firms that make large open-market share repurchases are more frequent targets of activist investors. This effect is driven by firms with market capitalizations under $2.5 billion, for which top quintile repurchasers are 31% more likely to be targeted in the following year. Compared to other activist targets, large repurchasers exhibit less change in payout and investment policy but a higher probability of CEO turnover following activist involvement. Overall, our findings suggest that activists agree with repurchasing managers about firm undervaluation but disagree on the best course forward.

Keywords: Share Repurchases, Activist Investors, Clientele Effect

JEL Classification: G32, G35