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Shareholder Activism and Implications for Corporate Governance

Published on Mar 26, 2008
· DOI :10.2139/SSRN.1115474
Karen Brenner1
Estimated H-index: 1
(NYU: New York University)
Abstract
Shareholder activists have used multiple approaches to pressure corporate boards and managers to enhance firm value. Historically, traditional activists have included individuals, mutual funds, and pension funds, but in recent years hedge funds have come to play an ever increasing role. This paper will review recent academic literature on the topic of shareholder activism and address the different opportunities or constraints associated with each activist group. Additionally, the tactics employed by activist hedge funds and their effectiveness in pursuing value creation strategies and changes in board governance will be reviewed. Looking forward, the paper considers the implications associated with the enormous growth of hedge funds, particularly in light of current market conditions.
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#1Barbara G. Katz (NYU: New York University)H-Index: 9
#2Joel Owen (NYU: New York University)H-Index: 10
We model activism as it affects the future distribution of prices in a portfolio context with risk-averse expected utility of end-of-period wealth maximizing investors. We characterize activism as affecting the mean, the variance, and/or the covariance of the target firm’s price with the prices of the other firms. This characterization allows us to investigate conditions under which the activist would choose to become an activist and, subsequently, to derive the sequence of equilibria that begin...