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;

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Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2017-02

Number: 2017-036

Pages: 55 pages

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