Is Carl Icahn Good for Long-Term Shareholders?

In the paper, Is Carl Icahn Good for Long-Term Shareholders? A Case Study of Shareholder Activism, which was recently published in the Journal of Applied Corporate Finance, we examine the case of Carl Icahn, whose career as a shareholder activist now spans at least three decades. The increase in activist campaigns by entrepreneurial investors and hedge funds in the past decade has raised considerable debate about their benefits for average shareholders. Although critics have longed charged that the proposals for change by such active investors typically do not increase the longer-run efficiency and values of the targeted companies, more recent studies have provided evidence of success, both in terms of increasing the market value of such companies and achieving at least some of the investors’ expressed objectives.

This article attempts to add to these findings by examining the case of a single well-known investor, Carl Icahn. We find that, first of all, that Icahn’s targets have included companies from a remarkable variety of industries, and that his stated objectives have varied with the industries of the targets. Although more of Icahn’s targets appear to have been overleveraged than underleveraged, a significant minority have had payouts ratios that were judged to be too low and more cash than they needed.

In terms of Icahn’s effect on other shareholders, we find a significant positive stock price reaction – on the order of 10% – to the announcement of Icahn’s taking a position in the target firm. When examining the subsequent performance of the target firms, we find a very large difference between those firms that were either taken private or acquired (within 18 months) – over a third of the target companies – and those that remained independent. We report that although the acquired group achieved significant positive stock market returns, the firms that remained independent suffered very negative (-60%) returns. Although Icahn’s proposed changes could be responsible, as critics charge, for the performance of the latter group, we suggest that the success of many of these companies in fending off Icahn without enacting most of his proposed reforms is a more plausible explanation. At the same time, Icahn was successful in achieving at least one of his stated objectives in well over half of the cases in which the target companies remained independent.

The full paper is available for download here.