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Working Paper
The Effects of Institutional Investor Objectives on Firm Valuation and Governance
We find that ownership by different types of institutional investor has different implications for future firm misvaluation and governance characteristics. Dedicated institutional investors decrease future firm misvaluation relative to fundamentals, as well as the magnitude of this misvaluation. In contrast, transient institutional investors have the opposite effect. Using SEC Regulation FD as an exogenous shock to information dissemination, we find evidence consistent with dedicated institutions having an information advantage. The valuation effects are primarily driven by institutional ...
Report
Leader-Follower Dynamics in Shareholder Activism
Motivated by the rise of hedge fund activism, we consider a leader blockholder and a follower counterpart who first trade in sequence to build their blocks and then intervene in a firm. With endogenous fundamentals and steering dynamics, the leader ceases to trade in an unpredictable way: she buys or sells to induce the follower to acquire a larger block and thus spend more resources to improve firm value. Key is that the activists have correlated private information—initial blocks, firms' fundamentals, or their own productivity—so that prices either overreact or underreact to order ...