Institutional Investor Activism and Engagement

Institutional Investor Activism and Engagement

  • 10 - 11 December 2017
  • Tel Aviv & Jerusalem, Israel

 

Jointly organized by

 

Centre for Economic Policy Research (CEPR)

European Corporate Governance Institute (ECGI)

The School of Business Administration, the Hebrew University Jerusalem

London Business School Center for Corporate Governance

Raymond Ackerman Family Chair in Israeli Corporate Governance, Bar-Ilan University

 

 

Organizing Committee

 

Marco Becht, Solvay Brussels School, ECGI and CEPR

Julian Franks, London Business School, ECGI and CEPR

Assaf Hamdani, Hebrew University of Jerusalem and ECGI

Beni Lauterbach, Bar-Ilan University and ECGI

Hannes Wagner, Bocconi University, Milan

Yishay Yafeh, Hebrew University, ECGI and CEPR

 

 

Confirmed Participants

 

Ian Appel, Boston College

Alon Brav, Duke University and ECGI

Jill Fisch, University of Pennsylvania and ECGI

Slava Fos, Boston College

Mariassunta Giannetti, Stockholm School of Economics and ECGI

Thomas Hellmann, University of Oxford

Cliff Holderness, Boston College

Robert Jackson, Columbia Law School

Doron Levitt, Wharton

Jörg Rocholl, ESMT Berlin and ECGI

Russ Wermers, University of Maryland

Bernie Black, Northwestern University and ECGI

Andrew Ellul, Indiana University and ECGI

Yaniv Grinstein,  Cornell University and ECGI

Assaf Hamdani, Hebrew University of Jerusalem and ECGI

Ehud Kamar, Tel Aviv University and ECGI

Eugene Kandel, Hebrew University of Jerusalem and ECGI

Amir Licht, Interdisciplinary Center Herzliya and ECGI

Miriam Schwartz Ziv, Michigan State University

Michael Weisbach, Ohio State University

 

 

With financial support from

 

European Corporate Governance Research Foundation (ECGRF)

Norwegian Finance Initiative (NFI)

Raymond Ackerman Family Chair in Israeli Corporate Governance

The Center for Empirical Studies of Decision Making and the Law at the Hebrew University

The I-Core Program of the Planning and Budgeting Committee and the Israel Science Foundation, Grant no. 1821/12

 

This conference is supported by:

    

10 December - Day 1

09:30
- 09:45

Registration and Coffee

09:45
- 09:55

Greetings

09:55

Session 1

09:55
- 10:40

The Allocation of Corporate Power between Shareholders and Managers

Back to full programme

The Allocation of Corporate Power between Shareholders and Managers

Time:
09:55h
- 10:40h

Speakers

Conference Documents

Back to full programme

Corporate governance through voice and exit: Evidence from Standard Life Investments

Time:
10:40h
- 11:30h

Speakers

Discussants

Conference Documents

11:30
- 11:45

Coffee

11:45

Session 2

Back to full programme

Public Pension Funds and Corporate Political Activism

Time:
11:45h
- 12:35h

This paper analyzes agency con icts between U.S. public pension funds and other shareholders. It studies the landmark decision by the U.S. Supreme Court on Citizens United v. FEC, which opens new doors for political activism by business. At the ruling, politically connected  rms held by public pension funds have lower announcement returns. After the ruling, these  rms remain engaged in political connections and experience a relative increase in ownership by public pension funds. Our evidence is consistent with public pension funds having a preference for more traditional forms of political activism, a preference not shared by other investors.

Speakers

Discussants

Conference Documents

12:35
- 13:45

Lunch

13:45

Session 3

Back to full programme

A Collaborative Model of the Corporation

Time:
13:45h
- 14:35h

Two models of the corporation dominate legal discourse. The first is the management-power model, which is premised on vesting corporate insiders -- officers and directors -- with primary decision-making power. The second is the shareholder-power model which contemplates increased shareholder power to reduce managerial agency costs and self-dealing. Both models assume that insiders and shareholders engage in a competitive struggle for corporate power and address, descriptively and normatively, the appropriate allocation of that power.

Corporate law and practice have moved beyond existing theories of the corporation framed in terms of a competitive power struggle between insiders and shareholders, however. Increasingly, the insider- shareholder dynamic in the modern corporation is collaborative, not competitive. This Article responds to this development, defending a collaborative model of the corporation on both descriptive and normative grounds. In particular, the Article uses game theory to demonstrate how insider-shareholder collaborations are likely to produce complimentary information that increases firm value.

The collaborative model offers several insights for corporate governance. First, it suggests that, to enhance collaboration, core governance provisions should be the product of bilateral action involving both insiders and shareholders. Second, board insulation mechanisms should require shareholder input. Finally, doctrines constraining director use of corporate information should facilitate rather than frustrating information sharing between activist directors and their principals. In turn, implementation of these principles requires rethinking and adapting several existing principles of corporate law.

Speakers

Discussants

Conference Documents

14:35
- 15:25

Institutional Investors' Impact on the Outcome of Freezeout Tender Offers

Speakers:
Discussant:
Miriam Schwartz Ziv
Back to full programme

Institutional Investors' Impact on the Outcome of Freezeout Tender Offers

Time:
14:35h
- 15:25h

We study institutional investors' impact on going private tender offers by controlling shareholders ("freezeout" offers) because these are occasions where engagement-restraining considerations such as keeping the long term relations with the firm are less relevant. Further, we examine data from Israel, where regulation over freezeout offers is loose and where (consequently?) about half of the offers are rejected. We find that in accepted offers, the offer premium increases with institutional investor holdings. Institutional ownership also increases the likelihood that the offer is rejected. However, in rejected offers, institutional investors do not appear to add to public value. This complex evidence is consistent with institutional investors acting as strategic bargaining agents.

Speakers

Discussants

Conference Documents

15:25
- 15:45

Coffee

15:45

Session 4

15:45
- 16:35

Soft Shareholder Activism

Speakers:
Discussant:
Sivan Frenkel
Back to full programme

Soft Shareholder Activism

Time:
15:45h
- 16:35h

This paper studies communications between investors and firms as a form of corporate governance. The main premise is that activist investors cannot force their ideas on companies; they must persuade the board or other shareholders that implementing these ideas is in the best interest of the firm. In this framework, I show that voice (launching a public campaign) and exit (selling shares) enhance the ability of activists to govern through communication. The analysis identifies the factors that contribute to successful dialogues between investors and firms. It also shows that public communications are likely to be ine§ective, justifying the prevalence of behind-the-scenes communications.

Speakers

Discussants

Conference Documents

18:00

Dinner

11 December - Day 2

09:00

Session 1

Back to full programme

Activist Directors and Information Leakage

Time:
09:00h
- 09:50h

Speakers

Discussants

Conference Documents

09:50
- 10:40

Activism, Strategic Trading, and Liquidity

Speakers:
Discussant:
Zvi Wiener
Back to full programme

Activism, Strategic Trading, and Liquidity

Time:
09:50h
- 10:40h

We analyze dynamic trading by an activist investor who can expend costly e↵ort to a↵ect firm value. We obtain the equilibrium in closed form for a general activism technology, including both binary and continuous outcomes. Variation in parameters can produce either positive or negative relations between market liquidity and economic e ciency, depending on the activism technology and model parameters. Two results that contrast with the previous literature are that (a) the relation between market liquidity and economic e ciency is independent of the activist’s initial stake for a broad set of activism technologies and (b) an increase in noise trading can reduce market liquidity, because it increases uncertainty about the activist’s trades (the activist trades in the opposite direction of noise traders) and thereby increases information asymmetry about the activist’s intentions.

Speakers

Discussants

Conference Documents

10:40
- 11:10

Coffee

11:10

Session 2

11:10
- 12:00

How Does Hedge Fund Activism Reshape Corporate Innovation?

Speakers:
Discussant:
Back to full programme

How Does Hedge Fund Activism Reshape Corporate Innovation?

Time:
11:10h
- 12:00h

This paper studies how hedge fund activism impacts corporate innovation. Firms targeted by activists improve their innovation efficiency over the five-year period following hedge fund intervention. Despite a tightening in R&D expenditures, target firms increase innovation output, as measured by both patent counts and citations, with stronger effects among firms with more diversified innovation portfolios. Reallocation of innovative resources, redeployment of human capital, and change to board-level expertise all contribute to improve target firms’ innovation. Additional tests help isolate the effect of intervention from alternative explanations, including mean reversion, sample attrition, voluntary reforms, or activist stock-picking.

Speakers

Discussants

Conference Documents

Back to full programme

Job Creation: The Role of Foreign Venture Capital

Time:
12:00h
- 12:50h

Speakers

Discussants

Conference Documents

12:50
- 14:00

Lunch

14:00

Session 3

14:00
- 14:50

Standing on the Shoulders of Giants: The Effects of Passive Investors on Activism

Speakers:
Discussant:
Back to full programme

Standing on the Shoulders of Giants: The Effects of Passive Investors on Activism

Time:
14:00h
- 14:50h

We analyze whether the growing importance of passive investors has influenced the campaigns, tactics, and successes of activists. We find activists are more likely to pursue changes to corporate control or influence when a larger share of the target company’s stock is held by passively managed mutual funds. Furthermore, higher passive ownership is associated with increased use of proxy fights and a higher likelihood the activist obtains board representation or the sale of the targeted company. Our findings suggest that the large ownership stakes of passive institutional investors mitigate free-rider problems and ultimately increase the likelihood of success by activists.

Speakers

Discussants

Conference Documents

Back to full programme

Adapting to Radical Change: The Benefits of Short-Horizon Investors

Time:
14:50h
- 15:40h

We show that following large permanent negative shocks, firms with more short-term institutional investors suffer smaller drops in sales, investment and employment and have better long-term performance than similar firms affected by the shocks. To do so, these firms increase advertising, differentiate their products from those of the competitors, conduct more diversifying acquisitions, and have higher executive turnover in the aftermath of the shocks. Our findings suggest that firms with more short-term investors put stronger effort in adapting their business to the new competitive environment. Endogeneity of institutional ownership and other selection problems do not appear to drive our findings.

Speakers

Discussants

Conference Documents

15:40
- 16:00

Coffee

16:00

Session 4

16:00
- 16:50

Do Institutional Investors Monitor their Large vs. Small Investments Differently? Evidence from the Say-On-Pay Vote

Speakers:
Discussant:
Back to full programme

Do Institutional Investors Monitor their Large vs. Small Investments Differently? Evidence from the Say-On-Pay Vote

Time:
16:00h
- 16:50h

We consider institutional voting on Say-On-Pay as a function of the size of an institution's position. Smaller positions, measured either as percent of a firm held or portfolio weight invested in a firm, lead to lower support of management in SOP voting, consistent with small-scale investors having limited incentives and opportunity to participate in governance through alternative venues. This result is largest when the firm has significant blockholder presence, and holds independent of ISS recommendations. We also find that the size of investment at the institutional advisor level, rather than the fund level, better predicts voting. Hence, in companies with a dispersed shareholder structure, the SOP vote is particularly likely to be used to oppose management. To summarize, we find that, when a low-cost monitoring opportunity is made available, small institutional positions, which aggregate to a large level of ownership across institutions, can play a meaningful role in corporate governance.

Speakers

Discussants

Conference Documents

18:30

Dinner

Speakers

Presentations

Back to all presentations

The Allocation of Corporate Power between Shareholders and Managers

Time:
09:55h
- 10:40h

Speakers

Conference Documents

Back to all presentations

Corporate governance through voice and exit: Evidence from Standard Life Investments

Time:
10:40h
- 11:30h

Speakers

Discussants

Conference Documents

Back to all presentations

Public Pension Funds and Corporate Political Activism

Time:
11:45h
- 12:35h

This paper analyzes agency con icts between U.S. public pension funds and other shareholders. It studies the landmark decision by the U.S. Supreme Court on Citizens United v. FEC, which opens new doors for political activism by business. At the ruling, politically connected  rms held by public pension funds have lower announcement returns. After the ruling, these  rms remain engaged in political connections and experience a relative increase in ownership by public pension funds. Our evidence is consistent with public pension funds having a preference for more traditional forms of political activism, a preference not shared by other investors.

Speakers

Discussants

Conference Documents

Back to all presentations

A Collaborative Model of the Corporation

Time:
13:45h
- 14:35h

Two models of the corporation dominate legal discourse. The first is the management-power model, which is premised on vesting corporate insiders -- officers and directors -- with primary decision-making power. The second is the shareholder-power model which contemplates increased shareholder power to reduce managerial agency costs and self-dealing. Both models assume that insiders and shareholders engage in a competitive struggle for corporate power and address, descriptively and normatively, the appropriate allocation of that power.

Corporate law and practice have moved beyond existing theories of the corporation framed in terms of a competitive power struggle between insiders and shareholders, however. Increasingly, the insider- shareholder dynamic in the modern corporation is collaborative, not competitive. This Article responds to this development, defending a collaborative model of the corporation on both descriptive and normative grounds. In particular, the Article uses game theory to demonstrate how insider-shareholder collaborations are likely to produce complimentary information that increases firm value.

The collaborative model offers several insights for corporate governance. First, it suggests that, to enhance collaboration, core governance provisions should be the product of bilateral action involving both insiders and shareholders. Second, board insulation mechanisms should require shareholder input. Finally, doctrines constraining director use of corporate information should facilitate rather than frustrating information sharing between activist directors and their principals. In turn, implementation of these principles requires rethinking and adapting several existing principles of corporate law.

Speakers

Discussants

Conference Documents

Back to all presentations

Institutional Investors' Impact on the Outcome of Freezeout Tender Offers

Time:
14:35h
- 15:25h

We study institutional investors' impact on going private tender offers by controlling shareholders ("freezeout" offers) because these are occasions where engagement-restraining considerations such as keeping the long term relations with the firm are less relevant. Further, we examine data from Israel, where regulation over freezeout offers is loose and where (consequently?) about half of the offers are rejected. We find that in accepted offers, the offer premium increases with institutional investor holdings. Institutional ownership also increases the likelihood that the offer is rejected. However, in rejected offers, institutional investors do not appear to add to public value. This complex evidence is consistent with institutional investors acting as strategic bargaining agents.

Speakers

Discussants

Miriam Schwartz Ziv

Conference Documents

Back to all presentations

Soft Shareholder Activism

Time:
15:45h
- 16:35h

This paper studies communications between investors and firms as a form of corporate governance. The main premise is that activist investors cannot force their ideas on companies; they must persuade the board or other shareholders that implementing these ideas is in the best interest of the firm. In this framework, I show that voice (launching a public campaign) and exit (selling shares) enhance the ability of activists to govern through communication. The analysis identifies the factors that contribute to successful dialogues between investors and firms. It also shows that public communications are likely to be ine§ective, justifying the prevalence of behind-the-scenes communications.

Speakers

Discussants

Sivan Frenkel

Conference Documents

Back to all presentations

Activist Directors and Information Leakage

Time:
09:00h
- 09:50h

Speakers

Discussants

Conference Documents