Working Paper: CEPR ID: DP14995
Authors: Rui Albuquerque; Vyacheslav Fos; Enrique Schroth
Abstract: We model an investor’s choice between filing Schedules 13D and 13G and use the model to estimate expected returns to activist and passive investing. Using the model, we decompose average Schedule 13D filing announcement returns into treatment (75.2%), stock picking (12.2%), and sample selection components (12.6%). The treatment component of Schedule 13D announcement returns predicts improvements in firm performance and a lower probability of a proxy contest, suggesting that our estimate of the treatment component identifies more effective activism campaigns. Counterfactual analysis shows that if all investors shared the private cost of activism, a large fraction of Schedule 13G filings would have been filed as Schedule 13D, resulting in substantial firm value gains.
Keywords: shareholder activism; value creation; passive investors; stock picking; structural estimation
JEL Codes: C34; G14; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| treatment component of schedule 13d announcement returns (G34) | improvements in firm performance (L25) |
| treatment component of schedule 13d announcement returns (G34) | reduced likelihood of proxy contest (G34) |
| private costs of activism (D72) | schedule 13g filings as schedule 13d (G34) |
| schedule 13g filings as schedule 13d (G34) | aggregate net increase in firm valuations (G32) |
| stock picking and sample selection components (G11) | observed announcement returns (G14) |