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

Jochen Hartmann, Matthias Pelster and Soenke Sievers

The Quarterly Review of Economics and Finance, 2023, vol. 89, issue C, 174-187

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 yield, on average, only marginally higher CAARs than the other targets. This indicates that financial markets have difficulties to consistently 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. Long-term top-performing targets have significantly different firm characteristics than the other targets, which may help to increase the probability of selecting future top performing engagements. However, activists do not solely engage in such targets. We conclude that the long-term performance of target firms seems to be driven by a combination of target firm characteristics, investor skills, and potentially some luck, but provides only limited follow-on investment strategies for outside investors.

Keywords: Shareholder activism; International evidence; Hedge funds; Non-hedge fund activism; Institutional investors (search for similar items in EconPapers)
JEL-codes: G15 G23 G34 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:89:y:2023:i:c:p:174-187

DOI: 10.1016/j.qref.2023.03.007

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