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Block Share Purchases and Corporate Performance
Author(s) -
Bethel Jennifer E.,
Liebeskind Julia Porter,
Opler Tim
Publication year - 1998
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/0022-1082.244195
Subject(s) - divestment , profitability index , business , limiting , market share , monetary economics , share price , asset (computer security) , agency cost , finance , shareholder , economics , corporate governance , stock exchange , mechanical engineering , computer security , computer science , engineering
This paper investigates the causes and consequences of activist block share purchases in the 1980s. We find that activist investors were most likely to purchase large blocks of shares in highly diversified firms with poor profitability. Activists were not less likely to purchase blocks in firms with shark repellents and employee stock ownership plans. Activist block purchases were followed by increases in asset divestitures, decreases in mergers and acquisitions, and abnormal share price appreciation. Industry‐adjusted operating profitability also rose. This evidence supports the view that the market for partial corporate control plays an important role in limiting agency costs in U.S. corporations.