Finance and Economics Discussion Series (FEDS)
Reputation and Investor Activism
Travis L. Johnson and Nathan Swem
We show that an activist's reputation is a critical determinant of the success of their campaigns. We model reputation as target managers' belief about the activist's willingness to initiate a proxy fight. Our model indicates reputation, rather than stake size, induces managers to settle without a proxy fight. We present empirical evidence supporting our model's predictions: target companies more-frequently increase payouts, change management or board composition, engage in a merger or acquisition, or otherwise reorganize in response to high reputation activist campaigns, while target actions are not sensitive to the activist's stake size.
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Keywords: Corporate Governance, Hedge Funds, Investor Activism, Reputation
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