Value Creation and Prominent Shareholder Activists

Open Access
Author:
Mathis, Michael Curtis
Area of Honors:
Finance
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • Joseph Randall Woolridge, Thesis Supervisor
  • James Alan Miles, Honors Advisor
Keywords:
  • shareholder
  • activist
  • activism
  • icahn
  • value
  • creation
Abstract:
The topic of shareholder activism has continued to gain popularity and interest across the financial community over the past several years. It’s an incredibly interesting mode of investing that comes with a significant amount of controversy. Companies targeted by activist investors feel tremendous amounts of pressure as the competency of their leaders is called into question for all shareholders to see. With its way of shaking things up and its increased popularity, the effectiveness of this unique mode of investing has been studied more and more in the last decade. This paper seeks to add to these studies by determining whether or not prominent activist investors are able to create value in the companies they target in both the short-term and long-term. The prominent activist hedge fund managers targeted in this study are Bill Ackman, Nelson Peltz, Daniel Loeb, Philip Falcone, and Carl Icahn. There are previous studies that focus on shareholder activism in general, that study a single activist, and that study hedge fund activism. This study attempts to determine the effectiveness of these prominent activist hedge fund managers by building off of the phenomenal research completed by those before me. This study finds that prominent activist hedge fund managers create value in their targets in the short-term, but not in the long-term. Several of the abnormal returns calculated are statistically significant at the 0.1, 0.05, and 0.01 significance levels. This conclusion is similar to those found by other studies. Several prior studies on hedge fund activism have concluded that the short-term announcement period returns in target companies are abnormally positive, and this has been widely accepted by the academic community. However, there are little to no studies that have concluded that activists are able to create value in the long-term. This supports the idea that activist hedge fund managers only invest to turn a quick profit and have little incentive to improve target company performance in the long-term.