The costs of shareholder activism: Evidence from a sequential decision model |
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| Authors: | Nickolay Gantchev |
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| Affiliation: | 1. Southern Methodist University, Cox School of Business, United States;2. The University of North Carolina at Chapel Hill, Kenan-Flagler Business School, United States;1. LAREFI, ESTA School of Business & Technology, France;2. IRGO, La Rochelle Business School, France;3. LARE-efi, University of Bordeaux, France;1. School of Securities and Futures, Southwestern University of Finance and Economics, Chengdu, China;2. Department of Finance, Fox School of Business, Temple University, Philadelphia, PA 19122, United States;1. University of Bristol, School of Economics Finance and Management, Room 2.05, 15–19 Tyndalls Park Road, The Prior Road Complex, Prior Road, Clifton BS8 1TU, United Kingdom;2. Birmingham Business School, University of Birmingham, Room 153, Edgbaston, Birmingham B15 2TT, United Kingdom;3. University of Bristol, School of Economics Finance and Management, Room 1.18, 15–19 Tyndalls Park Road, The Prior Road Complex, Prior Road, Clifton BS8 1TU, United Kingdom;1. University of Southampton, Southampton SO17 1BJ, United Kingdom;2. East Carolina University, 3127 Bate Building, Greenville, NC 27858, United States;3. Texas State University, 601 University Dr, San Marcos, TX 78666, United States;4. Kean University, 1000 Morris Ave, Union, NJ 07083, United States |
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| 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. |
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