Activism and empire building

Nickolay Gantchev, Merih Sevilir and Anil Shivdasani

Journal of Financial Economics, 2020, vol. 138, issue 2, 526-548

Abstract: Hedge fund activists target firms engaging in empire building and improve their future acquisition and divestiture strategy. Following intervention, activist targets make fewer acquisitions but obtain substantially higher returns by avoiding large and diversifying deals and refraining from acquisitions during merger waves. Activist targets also increase the pace of divestitures and achieve higher divestiture returns than matched non-targets. Activists curtail empire building through the removal of empire building chief executive officers (CEOs), compensation based incentives, and appointment of new board members. Our findings highlight an important channel through which activists improve efficiency and create shareholder value.

Keywords: Shareholder activism; Corporate governance; Mergers and acquisitions; Empire building; Hedge funds (search for similar items in EconPapers)
JEL-codes: G14 G23 G34 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:138:y:2020:i:2:p:526-548

DOI: 10.1016/j.jfineco.2020.06.001

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