Reputation and Investor Activism

Johnson, Travis L.; Swem, Nathan

doi:10.17016/FEDS.2017.036

Working Paper

Reputation and Investor Activism

Abstract: 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.

Keywords: Corporate Governance; Hedge Funds; Investor Activism; Reputation;

JEL Classification: G23; G34; G35;

https://doi.org/10.17016/FEDS.2017.036