We investigate the effect of shareholder activism on debtholders by examining a sample of bank loans for firms targeted by activist hedge funds. We compare loan spreads before and after intervention and show the effects of heterogeneous shareholder actions. Spreads increase when shareholder activism relies on the market for corporate control or financial restructuring. In contrast, spreads decrease when activists address managerial entrenchment. Furthermore, the effects are more pronounced when pre-existing governance mechanisms are weak. Our findings suggest that shareholder activism does not necessarily exacerbate bondholder-shareholder conflicts of interest and highlight the role of activism in aligning investors.

ABSTRACT: We examine the relation between shareholder investment horizon and chief executive officer (CEO) horizon incentives derived from compensation contracts. We find that influential incumbent shareholders provide managers with short-horizon incentives to maximize current firm value when these shareholders plan to sell their stock. Specifically, we use the initial public offering (IPO) setting in which venture capitalists (VCs) represent short-horizon, controlling investors with strong selling incentives after the IPO. We predict and find that VCs' short-term incentives influence CEO's annual horizon incentives following the IPO. At the same time, institutional monitoring limits the influence of VCs on annual, short-horizon incentives. To preempt this disciplining by market participants, VCs grant equity prior to the IPO that correspond with their short-horizons and result in shorter portfolio horizon incentives for the CEO after the IPO. We also document a positive relation between long-run abnormal stock returns and horizon incentives, consistent with horizon incentives influencing management actions. Data Availability: All data are publicly available from the sources indicated in the paper.

We examine the effect of large shareholders׳ ex ante selling incentives on firms׳ voluntary disclosure choices in the setting of IPO lockup expirations. We find evidence that managers delay disclosures of bad news, not for their own benefit, but to enable influential pre-IPO shareholders to sell their shares at more favorable prices. Delays are more pronounced when aggregate selling incentives are greater, when uncertainty is high, and when venture capitalists, influential investors with strong selling incentives, own more shares. Simultaneously, managers׳ disclosure decisions reflect litigation concerns; no significant delays occur when litigation risk is high or when managers trade themselves.