Do Activists Increase Long-Term Shareholder Value? New Evidence that Includes Non-Hedge Fund Activists

Shareholder activists are often accused of having short investment horizons and thus pushing companies to increase their stock prices at the expense of long-term shareholder value (“short-termism”). These accusations have prompted extensive research on interventions by hedge funds. In a survey of thirty years of such research, Denes et al. (2017) nevertheless conclude that the issue is still not settled.

In a recent study, we use a very different sample of activists and targeted firms from prior research to shed new light on this issue. Drawing on several sources of information, we develop a 20-year sample of 4,312 campaigns … Read more

Litigation Risk and the Independent Director Labor Market

A recent decision by the Delaware Supreme Court, In re Investors Bancorp, Inc. Stockholder Litigation (“Investors Bancorp”), increased the risk of litigation against directors, bucking a dec Edit visibilityades-long trend. The decision reversed a Chancery Court ruling and substantially changed the standard that Delaware courts use to review shareholder derivative litigation dealing with director equity grants (Skadden 2017). We use the decision to examine two related issues: (1) is litigation risk a material issue in the independent director employment market and (2) is there an optimal level of litigation risk as a corporate governance mechanism that … Read more

The Cost of Disclosure Regulation: Evidence from D&O Insurance and Non-Meritorious Securities Litigation

There is an extensive literature on the benefits of mandatory disclosure by firms, but measuring the costs of such disclosure has been more challenging (Leuz and Wysocki 2016). In particular, while some believe that mandatory disclosure could increase litigation against firms (e.g. Coates and Srinivasan 2014), few papers find such evidence. We use proprietary directors’ and officers’ (D&O) insurance data and a natural experiment based on inter-state variation in disclosure regulation to examine this question. Specifically, state law requires that firms incorporated in New York disclose D&O insurance premiums. We examine whether D&O insurance premiums for New York and non-New … Read more