The Power of Voluntary Disclosure by Activist Shareholders

A key challenge for activist investors is convincing other shareholders that the activist agenda will increase the value of a target firm. Accordingly, activists commonly release public disclosures through traditional and social media, news wires, or their fund’s website. These disclosures are often formatted as open letters aimed at the target’s board, management, or existing shareholders.

In our study, we hand collect a sample of activists’ disclosures and systematically analyze their consequences. We find that they are associated with significantly positive stock returns of 2.4 percent at the target firm around their release dates. These disclosures are also associated with decreased investor information asymmetry and are leading indicators of several activist-campaign outcomes, including proxy contests, directorships, and proxy adviser recommendations. We also find that managers respond to activist disclosures through increased disclosure of their own. We find no evidence that activists release disclosures simply to manipulate a target’s stock price.

We conclude that activists release public disclosures for the purpose of facilitating change at the target firm and informing other investors. Our study helps to explain recent findings in the finance literature that, despite being minority shareholders, activists are quite successful at effecting change at their targets (e.g., Brav et al., 2008, 2015; Edmans and Holderness, 2017). Our study also identifies public disclosure as a mechanism by which large shareholders solve the investor coordination challenges created by dispersed corporate ownership—a key trait of most developed economies.

Our findings also apply more broadly to influential theories of voluntary disclosure. Although the corporate disclosure literature centers on disclosures released by managers to investors, many disclosure theories apply beyond managers to any possessor of superior information in the market (e.g., Milgrom, 1981; Verrecchia, 1983). We extend this literature by showing that activists’ disclosures are an important but understudied component of firms’ information environments. Activists’ disclosures thus have corporate finance implications to the extent that information asymmetry affects a firm’s cost of capital.

Our findings also raise interesting questions for standard price-setting models that assume that investors act on information solely by trading in a company’s shares (e.g., Grossman and Stiglitz, 1980). We find that this is not the case for all investors: Some investors elect to release some of their information publicly to affect a company’s governance practices. We provide excerpts from activists’ disclosures in our paper. We also take steps to ensure that our findings are not confounded by other information events, such as corporate disclosures, analyst forecasts, the initial announcement of the activist campaign, or 13D filings.

In sum, Bartlett and Talley (2017, p. 232) argue that “corporate governance research going forward will almost certainly have to contend with the increasingly ‘horizontal’ nature of disputes among corporate participants.” We provide some of the first direct evidence on how large shareholders in U.S. public companies engage in such horizontal governance.


Bartlett, R., Talley, E., 2017. Law and Corporate Governance. In: Hermalin, B. E.,Weisbach, M. S. (eds.), The Handbook of the Economics of Corporate Governance, North Holland, vol. 1, chap. 4, pp. 177-234.

Brav, A., Jiang, W., Kim, H., 2015. The Real Effects of Hedge Fund Activism: Productivity, Asset Allocation, and Labor Outcomes. Review of Financial Studies 28, 2723-2769.

Brav, A., Jiang, W., Partnoy, F., Thomas, R., 2008. Hedge Fund Activism, Corporate Governance, and Firm Performance. Journal of Finance 63, 1729-1775.

Edmans, A., Holderness, C. G., 2017. Blockholders: A Survey of Theory and Evidence. In: Hermalin, B. E., Weisbach, M. S. (eds.), The Handbook of the Economics of Corporate Governance, North Holland, vol. 1, chap. 8, pp. 541-636.

Grossman, S., Stiglitz, J., 1980. On the Impossibility of Informationally Efficient Markets. American Economic Review 70, 393-408.

Milgrom, P., 1981. Good News and Bad News: Representation Theorems and Applications. Bell Journal of Economics 12, 380-391.

Verrecchia, R., 1983. Discretionary Disclosure. Journal of Accounting and Economics 5, 179-194.

This post comes to us from Professor Ryan McDonough at Rutgers Business School and Professor Jordan Schoenfeld at the University of Utah’s Eccles School of Business. It is based on their recent paper, “Voluntary Disclosure by Shareholders,” available here.