Activism and Takeovers
|Speaker:||Mike Burkart, London School of Economics|
|Date:||Tuesday 21 November 2017|
|Location:||Pearson Teaching Room|
At the root of agency problems in widely held firms, the lack of coordination among dispersed shareholders impedes governance in two ways: They neither participate in costly intervention (ex post free riding) nor sell their shares unless the price reflects the anticipated value improvement (ex ante free riding). Faced with this dual free-rider problem, picking one's poison corresponds to choosing between activism and tender offers. Given toeholds are small, the profits from these governance mechanisms exhibit inverse comparative statics, and although less efficient, tender offers underperform activism when the potential value improvement is large. Activists are most effective when, instead of restructuring firms themselves, they simply broker takeovers, in which case their campaigns are Pareto-improving.