Shareholder Wealth Effects of CalPERS' Activism

Abstract


 
 
 In the past decade, institutional investors have become more active in monitoring man- agement and voting the shares they control. The California Public Employees' Retirement System (CaIPERS) was a leader in this wave of activism. This study investi- gates the long-term returns an investor with public information could earn by buying a portfolio offirms targeted by CaIPERS and whether the success of CaIPERS' activism depends on the aggressiveness of the targeting. The evidence supports the idea that vis- ible and aggressive activism leads to substantial increases in shareholder wealth while a quieter activism does not.
 
 

Less Is More: Making Shareholder Activism A Valued Mechanism Of Corporate Governance

“…CalPERS by examining the stock price reaction to a firm's initial placement on the fund's publicly announced list of targets. 155 They find a short run positive price effect that disappears over a year after the announcement and conclude that for the full sample there is no lasting impact on performance. 156 They then divide their sample in two, the early years, 1992-94, when Dale Hanson was the fund's CEO and CalPERS' activist corporate governance campaign was quite visible, and the later years, 1995-97, when, under Hanson's successors, it came to play what they term a "quieter" (that is, a less visible, behind-the-scene) role.…”

Value of outside blockholder activism: Evidence from the switchers

“…For example, Nesbitt (1994), Smith (1996), Crutchley et al (1998), andBarber (2006) investigate shareholder activism by CalPERS and find a material share price increase around the day of engagement. Del Guercio and Hawkins (1999) study the impact of shareholder proposals by five pension funds, and find that they subsequently influence certain governance events.…”

Monitoring the Monitor: Evaluating CalPERS' Activism

“…As the above example illustrates, whether this maximizes the utility, rather than wealth, of investors depends on their shared objectives. (Crutchley, Hudson, and Jensen, 1998). Subject to CalPERS Board approval, letters were sent to the targeted company's CEO (Nesbitt, 1994).…”