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Shareholder activism has become quite a buzzword in recent years. But a recent study found that it’s not always such a good idea:

The study by a Harvard Business School assistant professor, Robin Greenwood, and Michael Schor, a former student, found that activist funds are like a boxer with one punch: They are most successful when they prod managers to put a company up for sale. Shares of the target company typically rise, and all shareholders benefit.

But the authors found that activist investors have much less impact when a targeted company isn't sold. In those cases, the study found there is little change in the next 18 months in the company's stock price or financial results. That is true even when the company takes steps recommended by the activists, such as firing the chief executive, buying back stock or adding new directors.

"The money is in getting the target acquired," Mr. Greenwood says. "The ones that don't end up getting acquired don't end up with much of anything."

That’s an interesting view and I’m not terribly surprised. Carl Icahn didn’t get much from Time Warner. I would also think that shareholder activism would have some effect on closely-hold companies, especially by families (like Dow Jones). That’s just my hunch but I think you would find greater complacency there.

Posted by edelfenbein at September 13, 2007 9:48 AM