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Managed Distribution Policies in Closed-End Funds and Shareholder Activism

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  • Cherkes, Martin
  • Sagi, Jacob S.
  • Wang, Z. Jay

Abstract

In closed-end funds, a managed distribution policy (MDP) is a dividend commitment potentially requiring the liquidation of assets. We argue that MDPs lower managerial claims on fund assets and, when the fund is at a discount, increase shareholder value. This transfer of wealth can be rationalized by managers wishing to deter a challenge from activist shareholders through a costly proxy vote. We find strong empirical evidence that managers respond to the presence of activists using MDPs, that MDPs constitute an effective wealth transfer to shareholders, and that activists are less likely to challenge management when an MDP is in place.

Suggested Citation

  • Cherkes, Martin & Sagi, Jacob S. & Wang, Z. Jay, 2014. "Managed Distribution Policies in Closed-End Funds and Shareholder Activism," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 49(5-6), pages 1311-1337, December.
    • Handle: RePEc:cup:jfinqa:v:49:y:2014:i:5-6:p:1311-1337_00
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    Cited by:

    1. Denes, Matthew R. & Karpoff, Jonathan M. & McWilliams, Victoria B., 2017. "Thirty years of shareholder activism: A survey of empirical research," Journal of Corporate Finance, Elsevier, vol. 44(C), pages 405-424.
    2. Hwang, Byoung-Hyoun & Kim, Hugh Hoikwang, 2017. "It pays to write well," Journal of Financial Economics, Elsevier, vol. 124(2), pages 373-394.
    3. Youchang Wu & Russ Wermers & Josef Zechner, 2016. "Managerial Rents vs. Shareholder Value in Delegated Portfolio Management: The Case of Closed-End Funds," The Review of Financial Studies, Society for Financial Studies, vol. 29(12), pages 3428-3470.
    4. Bajzík, Josef & Havranek, Tomas & Irsova, Zuzana & Novak, Jiri, 2023. "Does Shareholder Activism Create Value? A Meta-Analysis," CEPR Discussion Papers 18233, C.E.P.R. Discussion Papers.

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