Not all threats are taken equally: Evidence from proxy fights

Abstract

Previous research shows that activist threats lead to corporate policy concessions. We find that the threat of proxy fights is responded to differently based on its credibility. Decomposing proxy fight threats, we find that only credible threats are associated with more leveraged, more innovative, and less acquisitive corporate policies. Management, however, does not respond to noncredible threats. Further, for materialized fights, the market reaction at announcement is also conditional on the credibility of the threats. Overall, not all activist threats are responded to equally by management or the market, and only credible threats achieve disciplinary effects and favorable valuation.

Did they live happily ever after? The fate of restructured firms after hedge fund activism

“…Our study also relates to a broader theme that inspects the real effects of activism by informed outside investors. Some recent studies examined general external block shareholders' impact on various aspects of firm performance (e.g., Becker et al., 2011; Chen et al., 2019; Mccahery et al., 2016). Some others (e.g., Brav et al., 2015; Harford & Kolasinski, 2014) focus on alternative type of investors, such as hedge funds and private equity funds to find evidence supporting their wealth creation.…”