Journal of Financial Economics Vol. 145 No. 2 2022

Value creation in shareholder activism

Rui Albuquerque^1,2,3; Vyacheslav Fos^3,2,1; Enrique Schroth^1,4

¹ Centre for Economic Policy Research · ² Boston College · ³ European Corporate Governance Institute · ⁴ Ecole des Hautes Etudes Commerciales du Nord

Abstract

We measure value creation by activist investors via structural estimation of a model of the choice between passive investment and activism. Our estimates imply that average returns following activist intent announcements consist of 74.8% expected value creation, or treatment, 13.4% stock picking, and 11.8% sample selection effects. Higher treatment values predict improvements in firm performance and lower proxy contest probabilities, whereas abnormal announcements returns do not, suggesting that our estimate identifies more effective activism campaigns. The evidence demonstrates the importance of using the joint distribution of investment strategies and announcement returns to recover the expected returns and costs of activism.

DOI

10.1016/j.jfineco.2021.09.007

Volume

145

Issue

2

Pages

153-178

Language

en

Sources

openalex crossref bibtex:phds-export.bib

Cite

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