Returns to Shareholder Activism: Evidence from a Clinical Study of the Hermes U.K. Focus Fund

ECGI - Finance Working Paper No. 138/2006

London Business School Finance Working Paper No. FIN462

70 Pages Posted: 4 Dec 2006 Last revised: 21 Apr 2008

See all articles by Marco Becht

Marco Becht

Solvay Brussels School of Economics and Management (ULB); European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Julian R. Franks

London Business School - Institute of Finance and Accounting; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Colin Mayer

University of Oxford - Said Business School; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Stefano Rossi

Bocconi University; Krannert School of Management; Centre for Economic Policy Research (CEPR)

Date Written: April 2008

Abstract

This article reports a unique analysis of private engagements by an activist fund. It is based on data made available to us by Hermes, the fund manager owned by the British Telecom Pension Scheme, on engagements with management in companies targeted by its U.K. Focus Fund (HUKFF). In contrast with most previous studies of activism, we report that the fund executes shareholder activism predominantly through private interventions that would be unobservable in studies purely relying on public information. The fund substantially outperforms benchmarks and we estimate that abnormal returns are largely associated with engagements rather than stock picking. We categorize the engagements and measure their impact on the returns of target companies and the fund. We find that Hermes frequently seeks and achieves significant changes in the company's strategy including refocusing on the core business and returning cash to shareholders, and changes in the executive management including the replacement of the CEO or chairman.

Keywords: Shareholder activism, institutional investors, real authority

JEL Classification: G32

Suggested Citation

Becht, Marco and Franks, Julian R. and Mayer, Colin and Rossi, Stefano, Returns to Shareholder Activism: Evidence from a Clinical Study of the Hermes U.K. Focus Fund (April 2008). ECGI - Finance Working Paper No. 138/2006; London Business School Finance Working Paper No. FIN462. Available at SSRN: https://ssrn.com/abstract=934712 or http://dx.doi.org/10.2139/ssrn.934712

Marco Becht (Contact Author)

Solvay Brussels School of Economics and Management (ULB) ( email )

42 Avenue F. D. Roosevelt
1050
Brussels, 1050
Belgium
+32 2 6504466 (Phone)

HOME PAGE: http://www.solvay.edu/profile/marcobecht

European Corporate Governance Institute (ECGI) ( email )

Palace of the Academies
Rue Ducale 1 Hertogstraat
Brussels, 1000
Belgium

HOME PAGE: http://www.ecgi.global/users/marco-becht

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Julian R. Franks

London Business School - Institute of Finance and Accounting ( email )

Institute of Finance and Accounting
Sussex Place - Regent's Park
London NW1 4SA
United Kingdom
+44 20 7262 5050 x3449 (Phone)
+44 20 7724 3317 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Colin Mayer

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 1865 288112 (Phone)
+44 1865 288805 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Stefano Rossi

Bocconi University ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Krannert School of Management ( email )

West Lafayette, IN 47907-1310
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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