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Are financial constraints of corporate activist investors perceived negatively?

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  • Leopold Ingenohl

    (University of St. Gallen)

  • Nicolas Kube

    (University of St. Gallen)

Abstract

This paper shows that financial constraints of corporate activist investors are negatively perceived by the market. By conducting an event study on a sample of 561 Schedule 13(D) filings disclosed by US corporations in the years 1996–2016, abnormal share price reactions in the [−10, $$+$$ + 3] event window are about 10.8% lower for targets of financially constrained corporate investors. The average abnormal return for all targets is equal to 13.4%. This positive market response suggests that activism results in actual value improvement for the target. Yet, our analyses show that value improvements crucially depend on the investor’s access to external financing.

Suggested Citation

  • Leopold Ingenohl & Nicolas Kube, 2018. "Are financial constraints of corporate activist investors perceived negatively?," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 32(4), pages 367-398, November.
    • Handle: RePEc:kap:fmktpm:v:32:y:2018:i:4:d:10.1007_s11408-018-0321-8
    DOI: 10.1007/s11408-018-0321-8
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    More about this item

    Keywords

    Event study; Activist investors; Financial constraints;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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