Shareholder activism and voluntary disclosure
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We examine the relation between shareholder activism and voluntary disclosure. An important consequence of voluntary disclosure is less adverse selection in the capital markets. One class of traders that finds less adverse selection unprofitable is activist investors who target mispriced firms whose valuations they can improve. Consistent with this idea, we find that managers issue earnings and sales forecasts more frequently when their firm is more at risk of attack by activist investors, and that these additional disclosures reduce the likelihood of becoming an activist’s target. These additional disclosures also prompt a positive price reaction, contain more precise guidance, and exceed prevailing market expectations. These findings imply that managers use voluntary disclosure to preempt activism at their firm, and that activists prefer to target relatively opaque firms.
KeywordsCorporate disclosure Corporate governance Investor relations Shareholder activism
JEL ClassificationG10 G34 M41
We appreciate helpful comments and suggestions from an anonymous reviewer, Russell Lundholm (the editor), Ian Appel, Young Jun Cho (discussant), Pete Clarkson (discussant), Yonca Ertimur, Fabrizio Ferri, Sterling Huang, Wei Jiang, Roby Lehavy, Venky Nagar, Gaizka Ormazabal, Ewa Sletten, Guochang Zhang, and seminar participants at HEC Paris, Maastricht University, the University of Michigan, the 2015 Singapore Management University Accounting Symposium, and the 2016 UTS Australian Summer Accounting Conference. We also thank the Harvard Law School Forum on Corporate Governance and Financial Regulation for featuring this paper on October 21, 2015.
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