Financial Markets and Portfolio Management

, Volume 32, Issue 4, pp 367–398 | Cite as

Are financial constraints of corporate activist investors perceived negatively?

  • Leopold Ingenohl
  • Nicolas KubeEmail author


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.


Event study Activist investors Financial constraints 

JEL Classification

G14 G23 G32 



The authors thank the editor and the anonymous referee for their constructive comments and guidance.


  1. Allen, J.W., Phillips, G.M.: Corporate equity ownership, strategic alliances, and product market relationships. J. Finance 55, 2791–2815 (2000)CrossRefGoogle Scholar
  2. Almeida, H., Campello, M., Weisbach, M.S.: The cash flow sensitivity of cash. J. Finance 59, 1777–1804 (2004)CrossRefGoogle Scholar
  3. Almeida, H., Campello, M., Weisbach, M.S.: Corporate financial and investment policies when future financing is not frictionless. J. Corp. Finance 17, 675–693 (2011)CrossRefGoogle Scholar
  4. Betton, S., Eckbo, B.E., Thorburn, K.S.: Corporate takeovers. Handb. Corp. Finance Empir. Corp. Finance 2, 291–430 (2008)Google Scholar
  5. Brav, A., Jiang, W., Kim, H.: Hedge fund activism: a review. Found. Trends Finance 4, 185–246 (2009)CrossRefGoogle Scholar
  6. Brav, A., Jiang, W., Partnoy, F., Thomas, R.: Hedge fund activism, corporate governance, and firm performance. J. Finance 63, 1729–1775 (2008)CrossRefGoogle Scholar
  7. Brigida, M., Madura, J.: Information leakages prior to 13D filings. J. Financ. Econ. Pract. 12, 23–38 (2012)Google Scholar
  8. Campello, M., Chen, L.: Are financial constraints priced ? Evidence from firm fundamentals and stock returns. J. Money Credit Bank. 42, 1185–1198 (2010)CrossRefGoogle Scholar
  9. Collin-Dufresne, P., Fos, V.: Do prices reveal the presence of informed trading? J. Finance 70, 1555–1582 (2015)CrossRefGoogle Scholar
  10. Denes, M.R., Karpoff, J.M., McWilliams, V.B.: Thirty years of shareholder activism: a survey of empirical research. J. Corp. Finance 44, 405–424 (2017)CrossRefGoogle Scholar
  11. Farre-Mensa, J., Ljungqvist, A.: Do measures of financial constraints measure financial constraints? Rev. Financ. Stud. 29, 271–308 (2016)CrossRefGoogle Scholar
  12. Fazzari, S.M., Hubbard, R.G., Petersen, B.C., Blinder, A.S., Poterba, J.M.: Financing constraints and corporate investment. Brook. Pap. Econ. Act. 1988, 141–206 (1988)CrossRefGoogle Scholar
  13. Giglia, K.: A little letter, a big difference: an empirical inquiry into possible misuse of schedule 13G/13D filings. Columbia Law Rev. 116, 105–145 (2016)Google Scholar
  14. Greenwood, R., Schor, M.: Investor activism and takeovers. J. Financ. Econ. 92, 362–375 (2009)CrossRefGoogle Scholar
  15. Hadlock, C.J., Pierce, J.R.: New evidence on measuring financial constraints: moving beyond the KZ index. Rev. Financ. Stud. 23, 1909–1940 (2010)CrossRefGoogle Scholar
  16. Heller, S.: Financial Constraints and Corporate Credit Ratings - Essays in Corporate Finance and Risk Management. Dissertation, University of Hamburg (2015)Google Scholar
  17. Huang, P., Humphery-Jenner, M., Powell, R.: Minority acquisitions and information risk: international and cross -border evidence. Working paper (2017)Google Scholar
  18. Jagannathan, M., Stephens, C.P., Weisbach, M.S.: Financial flexibility and the choice between dividends and stock repurchases. J. Financ. Econ. 57, 355–384 (2000)CrossRefGoogle Scholar
  19. Kaplan, S.N., Zingales, L.: Do investment-cash flow sensitivities provide useful measures of financing constraints? Q. J. Econ. 112, 169–215 (1997)CrossRefGoogle Scholar
  20. Khatami, S.H., Marchica, M.T., Mura, R.: Corporate acquisitions and financial constraints. Int. Rev. Financ. Anal. 40, 107–121 (2015)CrossRefGoogle Scholar
  21. Klein, A., Zur, E.: Entrepreneurial shareholder activism: hedge funds and other private investors. J. Finance 64, 187–229 (2009)CrossRefGoogle Scholar
  22. Liao, R.C.: What drives corporate minority acquisitions around the world? The case for financial constraints. J. Corp. Finance 26, 78–95 (2014)CrossRefGoogle Scholar
  23. MacKay, P., Phillips, G.M.: How does industry affect firm financial structure? Rev. Financ. Stud. 18, 1433–1466 (2005)CrossRefGoogle Scholar
  24. MacKinlay, C.A.: Event studies in economics and finance. J. Econ. Lit. 35, 13–39 (1997)Google Scholar
  25. Moeller, S.B., Schlingemann, F.P., Stulz, R.M.: Firm size and the gains from acquisitions. J. Financ. Econ. 73, 201–228 (2004)CrossRefGoogle Scholar
  26. Nain, A., Wang, Y.: The product market impact of minority stake acquisitions. Manag. Sci. 64, 825–844 (2018)CrossRefGoogle Scholar
  27. Ouimet, P.P.: What motivates minority acquisitions? The trade-offs between a partial equity stake and complete integration. Rev. Financ. Stud. 26, 1021–1047 (2013)CrossRefGoogle Scholar
  28. Whited, T.M., Wu, G.: Financial constraints risk. Rev. Financ. Stud. 19, 531–559 (2006)CrossRefGoogle Scholar

Copyright information

© Swiss Society for Financial Market Research 2018

Authors and Affiliations

  1. 1.University of St. GallenSt. GallenSwitzerland

Personalised recommendations