Shareholder Monitoring and Discretionary Disclosure

Regulation Fair Disclosure (“Reg FD”) is commonly believed to prohibit managers from disclosing information about their firm to select shareholders. But managers are in fact allowed to do so in several circumstances. Specifically, Reg FD exempts communications to shareholders who will not trade on the information and to companies’ customers, suppliers, and strategic partners. In a new article, we exploit an understudied setting where large shareholders and firms enter into bilateral contracts that entitle the shareholders to receive specific information privately from management. We find that, after the execution of such contracts, firm performance improves and the amount of public … Read more

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 … Read more