Activism and Takeovers

Activism and Takeovers

Mike Burkart, Samuel Lee

Series number :

Serial Number: 

Date posted :

January 11 2018

Last revised :

October 02 2019
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  • 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 in widely held firms. From this we derive a comparative theory of disciplinary governance interventions: First, changes in the marginal return to effort have opposite effects on bidder profits and activist profits, so activism can outperform hostile bids despite being less efficient.

Second, activists are more effective brokering takeovers than restructuring firms themselves. Third, such takeover activists earn excess returns in part because their hurdle rate is the foregone return from free-riding on hostile bids. Our 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