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Influencing Control: Jawboning in Risk Arbitrage
Author(s) -
JIANG WEI,
LI TAO,
MEI DANQING
Publication year - 2018
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/jofi.12721
Subject(s) - arbitrage , risk arbitrage , payment , ex ante , shareholder , private benefits of control , corporate governance , business , control (management) , economics , monetary economics , financial economics , finance , arbitrage pricing theory , capital asset pricing model , macroeconomics , management
In an “activist risk arbitrage,” a shareholder attempts to improve terms of an announced M&A through public campaigns. Activists target deals with low premiums and those susceptible to managerial conflicts of interest, including going‐private deals and deals in which CEOs receive outsized payments. Activist arbitrageurs are associated with a significant decrease in the probability that targets will be sold to the announced bidders, and an increase in the premium paid, both ex post among surviving deals and ex ante among all deals. Activist arbitrage serves as a governance mechanism in M&A and earns higher returns than passive arbitrage.