RFS Advance Access published online on May 28, 2008
Review of Financial Studies, doi:10.1093/rfs/hhn054
Returns to Shareholder Activism: Evidence from a Clinical Study of the Hermes UK Focus Fund
ECARES, Université Libre de Bruxelles and ECGI
London Business School Centre for Corporate Governance, CEPR and ECGI
Saïd Business School, University of Oxford, CEPR, and ECGI
Stockholm School of Economics
Address correspondence to Marco Becht, ECARES, Université Libre de Bruxelles, Avenue F. D. Roosevelt 50, CP 114, 1050 Brussels, Belgium, Tel: +32 (2) 650 4466, Fax: +32 (2) 650 4475, Skype: marcobecht, E-mail: mbecht{at}ulb.ac.be.
JEL Classification: G32
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Abstract |
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This article reports a unique analysis of private engagements by an activist fund. It is based on data made available to us by Hermes, the fund manager owned by the British Telecom Pension Scheme, on engagements with management in companies targeted by its UK Focus Fund. In contrast with most previous studies of activism, we report that the fund executes shareholder activism predominantly through private interventions that would be unobservable in studies purely relying on public information. The fund substantially outperforms benchmarks and we estimate that abnormal returns are largely associated with engagements rather than stock picking.
We acknowledge financial support from the London Business School's Centre for Corporate Governance, the European Corporate Governance Training Network under European Commission contract number MRTN-CT-2004-504799, and from the ESRC under contract number R060230004. We are grateful to Hermes for having made data on their UK Focus Fund available on an arm's length basis and to current and former Hermes staff for their patience and support: Steve Brown, Tim Bush, Peter Butler, Michelle Edkins, David Pitt-Watson, Fatima Shaikh, Mike Weston, and in particular Leon Kamhi. We are grateful to the London Business School's Centre for Corporate Governance for providing access to Factiva, Datastream, the London Share Price Database, and the LBS annual reports collection. We are also grateful to Sarah Wilson and Tim Clarke at Manifest for data on shareholder proposals and to Bureau van Dijk Electronic Publishers for giving us access to their OSIRIS database. We would also like to thank the following for helpful comments: Lucian Bebchuk, Patrick Bolton, Brian Cheffins, Paul Coombes, Xavier Gabaix, Oliver Hart, Andrew Metrick, Randall Morck, Rafael Repullo, Jeremy Stein, Raman Uppal, Paolo Volpin, Michael Weisbach, Ivo Welch, Lucy White, an anonymous referee, and seminar participants at the NBER Corporate Governance Meetings, London Business School, Harvard Business School, INSEAD, IUI Stockholm, Norwegian School of Management, SIFR, SNS, Stockholm School of Economics, Tilburg University, University of Amsterdam, University of Rotterdam, the Berne University Conference on Family Business, and the Vanderbilt University Law and Business Conference on Investor Activism. Leonardo Cordeiro provided excellent research assistance.