Essays on shareholder activism and corporate governance

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Embargoed until 2023-04-19
Copyright: Balogh, Attila
This dissertation consists of three essays on shareholder activism and corporate governance. The first essay develops and validates a method to identify shareholder activism campaigns using a data-driven approach based on investor characteristics. The proposed identification can replace or complement the current method used in finance research that identifies shareholder activism campaigns based on a subjective evaluation of regulatory filings. It overcomes the ambiguity associated with the current approach and allows for a more accurate and consistent examination of activism that is also replicable. I show that professional investment manager status, investment portfolio size, and track record of proxy solicitations are important determinants of board turnover, which is the most common channel for influencing control by activist investors. The second essay provides evidence that activist investors improve the operation of the director labor market and profit from its imperfections through their superior ability to match directors to firms based on the director's specific expertise. I show that long-term returns are higher when a director is appointed to the target, especially when their prior experience makes them a good fit. Understanding that complex turnaround campaigns are only launched when a matched director is available provides insights into the collective action problem of disengaged investors, which is inherent in the regular director nomination process. I also highlight that takeovers are a similar reallocation of human capital because the firm is matched to new managers and directors. This is an overlooked point in activism research that frames takeovers as an efficient reallocation of financial capital only. The third essay examines insider trading activity by blockholders and compares their performance to executives and directors. Blockholders are expected to be important monitors, yet the findings reveal that they are less informed because their trades earn significantly lower abnormal returns compared to other insiders that purchase their company's stock. Using insider trading data extracted directly from regulatory disclosure allows for a classification of investor types and the examination of heterogeneity in trading patterns for different blockholder groups. I show that active blockholder trades are significantly more informative compared to other financial blockholders, indicating that they are considered active monitors by the market.
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Balogh, Attila
Adams, Renee
Zein, Jason
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PhD Doctorate
UNSW Faculty
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