Value of Shareholder Activism: Evidence from the Switchers
U of Texas Law, Law and Econ Research Paper No. 128
EFA 2008 Athens Meetings Paper
KDI School of Pub Policy and Management Research Paper No. 08-09
41 Pages Posted: 3 Mar 2008 Last revised: 2 Oct 2008
Date Written: December 2007
Abstract
This paper measures the value of shareholder activism focusing on outside block holders who switch their investment purpose from passive to active. Unlike the usual 5% ownership disclosure, switch does not necessarily involve additional share purchase and thus provides a cleaner test in effectively ruling out alternative theories such as stock picking skills, private information, or herding. We apply the test to outside block holders in the Korean market, which experienced a concentrated number of switchers in the first half of 2005 when the government adopted a new disclosure rule. Using this natural experimental setting with an exogenous shock, we find that firms with high cash flows but low dividend payouts typically become the targets of such a switch. Target price reaction is significantly positive around the time of the switch disclosure and this effect is more pronounced when the switcher is foreign or declares to use a wider scope of activist measures. Following the switch, we find evidence of relative increases in dividend payouts, but no evidence of excessive trading volume or a quick sell out of the switchers.
Keywords: Shareholder activism, Investment purpose, 5% rule, Korea
JEL Classification: G34
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Corporate Governance and Shareholder Initiatives: Empirical Evidence
By Jonathan M. Karpoff, Paul H. Malatesta, ...
-
The Impact of Shareholder Activism on Target Companies: A Survey of Empirical Findings
-
Shareholder Activism and Corporate Governance in the United States
-
Monitoring: Which Institutions Matter?
By Kai Li, Jarrad Harford, ...
-
Hedge Fund Activism, Corporate Governance, and Firm Performance
-
By Tim C. Opler and Jonathan S. Sokobin
-
The Evolution of Shareholder Activism in the United States
By Stuart Gillan and Laura T. Starks