Activism and Takeovers

Activism and Takeovers

Mike Burkart, Samuel Lee

Series number :

Serial Number: 

Date posted :

January 11 2018

Last revised :

March 19 2019
SSRN Share


  • free-rider problem • 
  • Hedge Fund Activism • 
  • takeover activism • 
  • tender offers • 
  • Market for Corporate Control • 
  • Blockholders • 
  • M&A

Buying and campaigning for control encounter different forms of free-riding behavior in widely held firms. We derive implications of this difference in a model with effort provision: First, changes in the marginal return to effort move bidder profits and activist profits in opposite directions, so activism can outperform tender offers despite being less efficient.

Second, activists are more effective brokering takeovers than restructuring firms themselves. Third, such takeover activists earn excess returns in part since their hurdle rate is the foregone return from free-riding in tender offers. These predictions match evidence on takeover activism and activist hedge funds’ performance.


Real name: 
Fellow, Research Member
London School of Economics and Political Science
Real name: 
Research Member
Leavey School of Business, Santa Clara University