Finance Seminar with Mike Burkart, SSE

The Department of Finance is proud to announce the upcoming seminar with Mike Burkart, Stockholm School of Economics.

Mike Burkart will present:

Activist Investors as Brokers of Corporate Control

Authors:
Mike Burkart, Stockholm School of Economics
Samuel Lee, NYU Stern School of Business

Abstract:

We integrate hedge fund activism and hostile tender offers in a theory where any investor who intervenes to improve firm value faces a dual free-rider problem: Neither do dispersed shareholders sell their shares unless the price fully reflects the anticipated value improvement of the intervention nor do those who retain their shares participate in the intervention costs. We show that tender offers and activism are polar approaches to this problem, and in terms of profitability, react contrarily to variation in the marginal return to effort. Activists can therefore contribute to a more efficient control allocation by brokering takeovers, along the extensive margin (takeover activity) as well as the intensive margin (ownership concentration), partially obviating tender offers. Furthermore, coordination on toeholds allows bidders and activists to reduce hold-up problems. Last, allowing activists to disentangle votes and cash flow rights improves their incentives and ultimately serves to unify control and ownership in the hands of bidders.