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| Type | Bachelor's Thesis |
| Scope | Discipline-based scholarship |
| Title | Do Activist Investors Add Value? |
| Organization Unit | |
| Authors |
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| Language |
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| Institution | University of Zurich |
| Faculty | Faculty of Business, Economics and Informatics |
| Number of Pages | 71 |
| Date | 2018 |
| Abstract Text | Although the roots of activism – commonly defined as an intervention of a shareholder to unlock value in some form – go back to the beginning of the 20iest century, the topic attracted considerable attention in the past two decades, with more than 60% of all activist campaigns taking place after 2007. As these campaigns are often accompanied by martial communication by the activists, media often portray this investor type as reckless and greedy. Hence, the public perception is that the interventions are detrimental to the target company’s value. This thesis aims to answer the question whether activists truly achieve their goal in unlocking value when executing an intervention at their respective target or not. Existing academic literature has come to the conclusion that this is the case (e.g Brav et al (2008), Clifford (2008), Goodwin (2015)). As in the past, researchers have primarily focused on analyzing the value generation for (1) the shareholder (expressed by excess returns) or (2) for the targeted company (expressed by an improvement of the operations) or (3) the debt providers (expressed by lower credit risk); I introduce a novel empirical model which accounts for all three components of value at once. My sample is based on SharkWatch50, a database which comprises all campaigns initiated by the top 50 activist hedge funds according to SharkRepellent. Given the importance of the filing system as a source of information, I removed all targets which weren’t having a primary listing in the US. As the operational performance was also in the spotlight of this empirical analysis, no targets operating in the financial industry were represented due to the different composition of the accounting measures compared to the other industries. Additionally, I removed all targets with a market capitalization below USD 20m at the time of the campaign announcement. The final, adjusted sample consists of 720 campaigns, resulting in 512 unique targets with a primary listing in the US. Compared to existing research, this sample is featuring the most actual time span (from January 1st, 2007 to July 26th, 2017) and hence mitigates the prevailing criticism in academia of the use of outdated samples. In order to find an econometric solution to the question of this thesis, I use linear regressions. In the empirical model, I introduce three dependent variables accounting for excess returns, 24 for operating performance and six for the capital structure. Then, six different independent variables are presented: Size measured by market capitalization (at the campaign announcement date), campaign duration (i.e. time span between announcement and end of campaign), number of campaigns in industry of activist target, activist campaign objective: Activist seeking board control rather than board representation only, 13D filing submission rate of the activist when initiating a campaign, submission rate of publicly disclosed letters to management. My findings - which are statistically significant - indicate that an activist generates (1) value for the shareholder through excess returns in the following cases: (i) target’s market capitalization is small, (ii) the campaign duration is short, (iii) the activist density in the general industry is high, (iv) the activist is seeking solely board representation as opposed to board control, (v) a 13D filing was submitted and (vi) a publicly disclosed letter to the target’s management was sent. In contrast, no final conclusion can be drawn on how their campaigns improve operational performance and hence (2) value for the target as none of the effects is significant: credit risk, measured by the evolution of the capital structure and hence representing (3) the value for a debt provider, is minimized if the target has (i) a low market capitalization, (ii) a long campaign duration, (iii) the activist is obtaining board control as opposed to board representation only and (iv) submits a 13D form with all effects being significant. While this thesis helps gaining a deeper understanding of the value generation process, two fundamental limitations exist: First, the results of the empirical model show that value creation takes place when the campaign has certain characteristics. Nevertheless it fails at quantifying the extent the activist was solely responsible for this effect as opposed to value generation that happened independently of the campaign. Second: The model only quantifies excess value generation for the shareholder (expressed by excess returns). For the two other components of value, the model does only deliver an answer to the question if value was generated but not if they were generated in excess compared to their respective peers which weren’t targeted by activists. |
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