Nickolay Gantchev is Associate Professor of Finance at Southern Methodist University Cox School of Business; Merih Sevilir is Associate Professor of Finance at Indiana University Kelley School of Business; and Anil Shivdasani is Wells Fargo Distinguished Professor of Finance at University of North Carolina Kenan-Flagler Business School. This post is based on their recent paper. 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 Who Bleeds When the Wolves Bite? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System by Leo E. Strine, Jr. (discussed on the Forum here).
The growing influence of activists in global capital markets has prompted financial economists to investigate the drivers of shareholder activism as well as the role of activists in shaping corporate financial strategy. Although several recent studies show that shareholder activism improves the performance of targeted firms, our understanding of the mechanisms through which activists enhance shareholder value remains limited.
In our new working paper, Do Activists Turn Bad Bidders into Good Acquirers?, available on SSRN, we uncover a new role of activists in the market for corporate control. We present evidence that activists curb incentives to engage in empire building acquisitions, limiting the scope of one of the most destructive forces in public companies. Hence, activists not only play an important role in facilitating the acquisition of targeted firms (see related post Activism Mergers by Boyson, Gantchev, and Shivdasani), they also constrain inefficient M&A strategies.
