Not all threats are taken equally: Evidence from proxy fights

2019 ◽  
Vol 55 (1) ◽  
pp. 145-168
Author(s):  
Fang Chen ◽  
Lijing Du ◽  
Susan M. V. Flaherty ◽  
Jian Huang ◽  
Gokhan Torna
Keyword(s):  
Proxy Fights

scholarly journals Firm Risk and Proxy Fights: Evidence from SOX

2018 ◽  
Vol 7 (2) ◽  
pp. 96
Author(s):  
Fang Chen ◽  
Jian Huang ◽  
Han Yu
Keyword(s):  
Risk Taking ◽  
Idiosyncratic Risk ◽  
Total Risk ◽  
Firm Risk ◽  
Exogenous Shock ◽  
Sarbanes Oxley ◽  
Proxy Fights

The Sarbanes Oxley Act of 2002 (SOX) is documented to curb executive risk-taking and firm risk. Utilizing SOX as an exogenous shock on firm risk, we find that proxy fight threats are positively related to a firm’s total risk and idiosyncratic risk. Specifically, although firm risk generally decreases post-SOX, high proxy fight threats mitigate this change in firm risk. We also find that although firms adopt more conservative policies such as decreasing their leverage and payout post-SOX, these changes are mitigated by proxy fight threats. In sum, our findings indicate that proxy fights act as an external disciplinary mechanism, encourage executive risk-taking, and increase firm risk.

scholarly journals Standing on the Shoulders of Giants: The Effect of Passive Investors on Activism

2018 ◽  
Vol 32 (7) ◽  
pp. 2720-2774 ◽  
Author(s):  
Ian R Appel ◽  
Todd A Gormley ◽  
Donald B Keim
Keyword(s):  
Mutual Funds ◽  
Institutional Investors ◽  
Free Rider ◽  
Recent Growth ◽  
Editorial Decision ◽  
Proxy Fights ◽  
Board Representation ◽  
Passive Investors

Abstract We analyze whether the growing importance of passive investors has influenced the campaigns, tactics, and successes of activists. We find activists are more likely to seek board representation when a larger share of the target company’s stock is held by passively managed mutual funds. Furthermore, higher passive ownership is associated with increased use of proxy fights, settlements, and a higher likelihood the activist achieves board representation or the sale of the targeted company. Our findings suggest that the recent growth of passive institutional investors mitigates free-rider problems and facilitates activists’ ability to engage in costly, value-enhancing forms of monitoring. Received September 28, 2016; editorial decision August 18, 2018 by Editor Andrew Karolyi.

scholarly journals Reputation and Investor Activism: A Structural Approach

2020 ◽  
Vol 2017 (036r1) ◽  
pp. 1-68
Author(s):  
Travis L. Johnson ◽  
◽  
Nathan Swem ◽  
Keyword(s):  
Dynamic Model ◽  
Structural Approach ◽  
Target Firms ◽  
Reputation Effects ◽  
Proxy Fights ◽  
The Impact ◽  
Investor Activism ◽  
Reputation Building

We measure the impact of reputation for proxy fighting on investor activism by estimating a dynamic model in which activists engage a sequence of target firms. Our estimation produces an evolving reputation measure for each activist and quantifies its impact on campaign frequency and outcomes. We find that high reputation activists initiate 3.5 times as many campaigns and extract 85% more settlements from targets, and that reputation-building incentives explain 20% of campaign initiations and 19% of proxy fights. Our estimates indicate these reputation effects combine to nearly double the value activism adds for target shareholders.

Activist Hedge Funds

2017 ◽  
Author(s):  
Tony Calenda ◽  
Christopher Milliken ◽  
Andrew C. Spieler
Keyword(s):  
Hedge Funds ◽  
Hedge Fund ◽  
Investment Strategy ◽  
Professional Literature ◽  
Public Companies ◽  
Long Run ◽  
Public Company ◽  
Corporate Raiders ◽  
Proxy Fights ◽  
Policy Discussion

Activist hedge funds (AHFs), a relatively new alternative investment strategy, have had a large and growing impact on investing and on how public companies are managed. Although activist investing was once the province of corporate raiders, it is now an accepted hedge fund strategy. Often acquiring an influential stake in an undervalued public company before direct intervention, AHFs create their own catalyst for share appreciation. The actions or interventions taken by an AHF can range from direct communication with a board or management team to launching highly visible proxy fights or legal action. Through a review of academic and professional literature, this chapter offers a look into the relevant public policy discussion, implications for target companies in the short and long run, and the techniques AHFs commonly deploy.

1996’s Hottest Proxy Fights

1996 ◽  
Vol 10 (2) ◽  
pp. 37-39
Author(s):  
Phil Davies ◽  
Keyword(s):  
Proxy Fights

Lucien Bailly (1871–1940): An eccentric troublemaker and a real precursor. A short story of shareholders’ activism in France at the beginning of the twentieth century

2019 ◽  
Vol 25 (4) ◽  
pp. 518-535
Author(s):  
Christine Fournès
Keyword(s):  
Twentieth Century ◽  
Short Story ◽  
Social Activism ◽  
Mining Industry ◽  
Minority Shareholders ◽  
Private And Public ◽  
The Creation ◽  
Proxy Fights ◽  
The Way

The article highlights the role of an eccentric troublemaker at the beginning of the twentieth century – Lucien Bailly. The Pont-à-Mousson company’s archives, one of the major joint stock companies in the mining industry at that time, provide a wealth of information about this very interesting character. It is argued that Lucien Bailly paved the way for present-day activism. While the nature of shareholder-activists is far different today, there is a similar dichotomy between private and public or cooperative and hostile actions. This is the true legacy of Lucien Bailly. He was also the pioneer of proxy fights with the creation of the first association defending minority shareholders and the precursor of social activism.

scholarly journals Proxy fights as agency discipline

2016 ◽  
Vol 13 (4) ◽  
pp. 61-65
Author(s):  
Jian Huang ◽  
Gökhan Torna ◽  
Daniel Singer
Keyword(s):  
Financial Performance ◽  
Boards Of Directors ◽  
Shareholder Wealth ◽  
Corporate Boards ◽  
Effective Mechanism ◽  
Efficient Market ◽  
Shareholder Returns ◽  
Proxy Fights

This paper investigates how proxy fights function to discipline corporate boards of directors to function as agents of the shareholders. One hundred and ninety six proxy fights are investigated between 1988 and 2009 to examine those factors which determine the most closely associated with winning or losing a proxy fight. Dissidents are found to be most likely to initiate and win a proxy fight when cumulative excess shareholder returns are negative. It is concluded that while declines in shareholder wealth do stimulate proxy fights, a semi-strong efficient market interpretation of financial performance leaves ample room for the successful defense of managerial policies and actions. Proxy fights provide an opportunity for dissidents to challenge these policies and actions often enough for proxy fights to be an effective mechanism for compelling fiduciary behavior by corporate boards.

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