Activism and empire building

Gantchev, Nickolay; Sevilir, Merih; Shivdasani, Anil

doi:10.1016/j.jfineco.2020.06.001

Cited by 49 publications

(21 citation statements)

References 48 publications

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“…We find this, but the effects are either negative or weak, unlike recent US studies (e.g. Gantchev, Sevilir and Shivdasani, 2020). The adverse effect on productivity is especially notable and, taken in conjunction with results showing employment reductions, is consistent with those perspectives on takeovers that emphasize the damaging effects of loss of human capital (Chen, Meyer-Doyle and Shi, 2021).…”

Section: Introductionsupporting

confidence: 87%

“…Specifically, activist hedge funds (AHFs) now play a major role in mergers and acquisitions (M&As) and subsequent corporate restructuring (Boyson, Gantchev and Shivdasani, 2017; Gantchev, Sevilir and Shivdasani, 2020; Greenwood and Schor, 2009). As in takeovers initiated by other types of investors (see Amess, Girma and Wright, 2014; Conyon et al ., 2002), restructuring initiated by AHFs can involve employment reductions (Chen, Meyer‐Doyle and Shi, 2021; DesJardine and Durand, 2020), wage cuts (Brav, Jiang and Kim, 2015) and divestitures (Gantchev, Sevilir and Shivdasani, 2020), all aimed at securing immediate gains in company value and operating performance. Some argue that these initiatives breach long‐term implicit contracts with employees (Agrawal and Lim, 2021) and facilitate wealth transfer from employees to shareholders (Coffee and Palia, 2016).…”

Section: Introductionmentioning

confidence: 99%

“…Some argue that these initiatives breach long‐term implicit contracts with employees (Agrawal and Lim, 2021) and facilitate wealth transfer from employees to shareholders (Coffee and Palia, 2016). However, whether restructuring after takeovers with AHF involvement leads to performance improvements is uncertain, with mixed evidence on post‐takeover performance (Gantchev, Sevilir and Shivdasani, 2020).…”

Section: Introductionmentioning

confidence: 99%

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Activist Hedge Funds and Takeovers: Their Effects on Employment and Performance

Kuvandikov

Pendleton

Goergen

2021

British J of Management

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This paper analyses the impact of activist hedge funds (AHFs) on post-merger workforce downsizing and operating performance. AHFs have been widely criticized for achieving short-term gains at the expense of other stakeholders, such as employees. The results show that AHF ownership and presence in acquiring firms is a significant determinant of post-merger employment reductions. There is little evidence that these mergers and acquisitions have better operating performance relative to other takeovers. However, there is a negative effect of AHF ownership on labour productivity. Overall, the results are consistent with the view that AHF involvement in takeovers does not lead to sustained gains in performance. 1 In 2015, Trian owned a 7.2% stake in Pentair plc and urged the company to increase value by facilitating 'prudent industry consolidation'. In that year, Pentair acquired a privately held component manufacturer for $1.8 billion in cash. In 2017, Pentair sold a valves and controls business it had acquired a few years earlier for $3.2 billion and decided to split its largest businesses, electrical and water products, into two separate companies (The Deal Pipeline, 2017).

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Section: Introductionsupporting

confidence: 87%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Activist Hedge Funds and Takeovers: Their Effects on Employment and Performance

Kuvandikov

Pendleton

Goergen

2021

British J of Management

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“…Fich, Harford, and Tran (2015) find that monitoring by target firms’ institutional investors bears a positive association with a higher probability of deal completion, a higher bid premium offered for the target firms, and a lower acquirer return. Gantchev et al (2020) show that hedge fund activists can curb managerial empire building through M&As and lead firms to make high-quality M&A decisions. To date, research has focused mainly on long investors (e.g., institutional investors), and little attention has been paid to exploring the influence of the short side of capital markets (i.e., short sellers) on M&A decisions.…”

Section: Theoretical Backgroundmentioning

confidence: 99%

Disciplining Role of Short Sellers: Evidence From M&A Activity

Shi

Ndofor

Hoskisson

2020

Journal of Management

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Prior research has focused on the influence of long investors (e.g., institutional investors) on merger-and-acquisition (M&A) decisions. This study investigates the role of short sellers in shaping managerial acquisitiveness and M&A decision quality. Short sellers impose a downward pressure on stock prices by disseminating negative information to the market. Given that managerial wealth and job security hinge on stock prices, top managers respond to increased short selling by refraining from excessive M&A activities because M&As could provide opportunities for short sellers to spread negative information and dampen stock prices. Furthermore, the negative influence of short sellers on managerial acquisitiveness is enhanced by the market for corporate control as an external governance mechanism and by CEO equity ownership as an internal governance mechanism. When firms with increasing short selling do engage in M&As, they gain higher M&A announcement returns and operating performance. We test our hypotheses using firms in the S&P 1500 from 2002 to 2014 and find support for our arguments.

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“…The M&A literature also consistently shows that not all takeover events are value-enhancing. Value destroying M&As may be the result of an organization run by CEOs and managers with an empire-building mentality, indicating agency problems within the corporation (e.g., Gantchev et al, 2020). In such cases, the managerial objectives are generally inconsistent with the shareholders' objectives of firm-value maximization.…”

Section: Controlsmentioning

confidence: 99%

Management Practices and Takeover Decisions

2021

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Firms with good management practices optimize and synthesize human resources, leadership, and technical and conceptual skills to enhance firm value. In this paper, we examine the role of management practices in merger and acquisition (M&A) decisions. M&A decisions are among the most important corporate decisions, on which firms spend a lot of resources and managerial qualities. We estimate management practices as a latent variable using a structural equation production model and Bayesian techniques. The key advantage of the Bayesian approach is the use of informative priors from survey-based management estimation methods, which are however available for a limited number of firms. Subsequently, we examine the effect of management practices on takeover events. We first show that management practices, on average, increase the probability of M&A deals. However, we also uncover a nonlinear U-shaped effect, which is consistent with the theoretical premise that poor management leads to many value-decreasing M&A deals, whereas good management leads to many value-increasing M&A deals.

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Activism and empire building

Cited by 49 publications

References 48 publications

Activist Hedge Funds and Takeovers: Their Effects on Employment and Performance

Activist Hedge Funds and Takeovers: Their Effects on Employment and Performance

Disciplining Role of Short Sellers: Evidence From M&A Activity

Management Practices and Takeover Decisions

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