The costs of shareholder activism: Evidence from a sequential decision model

Nickolay Gantchev

Journal of Financial Economics, 2013, vol. 107, issue 3, 610-631

Abstract: This paper provides benchmarks for monitoring costs and evaluates the net returns to shareholder activism. I model activism as a sequential decision process consisting of demand negotiations, board representation, and proxy contest and estimate the costs of each activism stage. A campaign ending in a proxy fight has average costs of $10.71 million. I find that the estimated monitoring costs reduce activist returns by more than two-thirds. The mean net activist return is close to zero but the top quartile of activists earns higher returns on their activist holdings than on their non-activist investments. The large-sample evidence presented in this paper aids in understanding the nature and evolution of activist engagements.

Keywords: Shareholder activism; Hedge funds; Institutional investors; Monitoring; Corporate governance (search for similar items in EconPapers)
JEL-codes: G23 G32 G34 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (80)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:107:y:2013:i:3:p:610-631

DOI: 10.1016/j.jfineco.2012.09.007

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