Wei Jiang is the Arthur F. Burns Professor of Free and Competitive Enterprise at Columbia Business School. This post is based on a discussion paper authored by Professor Jiang; Tao Li, Assistant Professor of Finance at Warwick Business School; and Danqing Mei, Ph.D. candidate in Finance at Columbia Business School. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here), and The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here).
Our paper, Influencing Control: Jawboning in Risk Arbitrage, publicly available on SSRN, provides the first study on a relatively new phenomenon of “activist risk arbitrage,” in which activist shareholders wield their influence over corporate control changes by blending shareholder activism into an M&A arbitrage strategy. More specifically, the activist arbitrageurs attempt to block an announced M&A deal through public campaigns in order to extract better deal terms. Such activities have been on the rise since the early 2000s: they were observed in fewer than 1% of all M&A deals in early 2000s, rising to around 10% during the past few years. However, the academic literature has not formally analyzed the full process, characteristics, or the impact of the new risk arbitrage strategy on the market for corporate control. As shareholder activism launched by institutional investors becomes increasingly commonplace in corporate governance, its marriage with a popular, traditionally non-activist, arbitrage strategy is instructive. A signature of institutional investor activism has been that it strives to influence corporate policies and governance, but does not aim for control. The activist arbitrage strategy, by inserting shareholder activism into corporate control events, thus bridges the two by “influencing control.”
