What is financial activism?

An activist investor is an individual or group that buys a significant stake in a public company in order to influence how the company is run, such as by obtaining seats on its board of directors.

What is a financial activist?

Activist investing is the practice of buying a large amount of a company's stock with the goal of gaining influence and pressuring the leadership team to make a specific set of changes to the enterprise. Activist investors push for changes that would increase the company's share price or benefit the activist investor ...

Is investor activism positive or negative?

While shareholder activism can result in positive change for individual investors, it can also lead to a negative long-term stock performance by the company.

What is meant by shareholder activism?

Shareholder activism involves the efforts of the shareholders to bring about a desired change in the operations of the company or to influence the management in governing the company to protect the interest of the shareholders. In India, the Companies Act 2013 is the main source of law relating to shareholder activism.

What is an activist investment fund?

Most hedge funds invest using unconventional strategies, but others take a more active role in realizing the value of their investments—these are known as activist hedge funds. Activist hedge funds not only engage the company's board and management in discussion, but also wage proxy battles, liquidate assets and even ...

Financial Activism

How do activist investors make money?

When activist investment works it can be very profitable. By fixing the company's problems, the activist investor will have made it more valuable and boosted its stock price considerably. The investor can sell his shares for more (ideally far more) than he originally paids.

What is investment banking activism?

An activist investor is an individual or institutional investor that seeks to acquire a controlling interest in a target company by gaining seats on the company's board of directors.

What is activism in M&A?

First, M&A activity can be an activist demand in itself. This is usually the work of activist hedge funds, who acquire stakes in companies which they believe are underperforming and publicly and/or privately agitate for change.

What are forms of activism?

Who was the first activist investor?

The practice of shareholder activism has its roots in the 17th-century Dutch Republic, with pioneering activist shareholders like Isaac Le Maire, a sizeable shareholder of the Dutch East India Company (VOC).

Is hedge fund activism good?

Overall, when comparing the total value generated over five years, shareholders of targeted companies benefit from hedge fund activism in the short term but seem at a disadvantage in the later years. After being targeted by an activist hedge fund, companies experience an immediate rise in their value.

Are activist investors good or bad for capitalism?

Activist investors are often seen as the epitome of all that's wrong with capitalism. They cut investment, fire employees, and break contracts to boost the short-term stock price—and cash out before the long-term value destruction comes to light.

What are the two most common forms of shareholder activism?

Why is shareholder activism important?

Some shareholders turn to activism because they feel it's an effective way to increase the value of the companies whose stock they own. Others do so to address governance practices they believe are hurting long-term value. Or they take issue with the company's products or business practices.

Do activist investors create value?

First, activist investors can indeed increase value by influencing the firm's corporate policies, i.e., the treatment effect of activism. Second, activist investors could be better at identifying undervalued stocks.

What is an example of activism?

When people tie themselves to trees to protect the forest from being cut down, it is an example of activism. The practice of using action to achieve a result, such as political demonstration or a strike in support of or in opposition to an issue.

What is aim of activism?

Activism (or Advocacy) consists of efforts to promote, impede, direct or intervene in social, political, economic or environmental reform with the desire to make changes in society toward a perceived greater good.

What makes activism successful?

An effective activist can communicate their plans and ideas well, to an audience or just talking to someone on the street. When explaining an idea or issue, tell people why you care so deeply about it, and convince them that they should too (or show them they already do!).

What is ESG activism?

ESG activism refers to individuals and organizations that advocate for Environmental, Social, and Corporate Governance (ESG) criteria as part of evaluating business operations.

What is activism defense?

Latham's top-ranked shareholder activism defense team acts on behalf of public company boards and management teams to aggressively repel the most sophisticated activist attacks and ensure companies benefit from state-of-the-art defenses. We know the activists' playbooks inside and out.

What shareholder activism can do?

Shareholder activists use their stake in the company to enact campaigns that can contribute to the overall company value or advocate for a social cause. Giving shareholders a voice has proven to increase corporate efficiency and mitigate any practice that can hinder the company from achieving optimal value.

What is a hedge fund do?

Hedge funds are actively managed investment pools whose managers use a wide range of strategies, often including buying with borrowed money and trading esoteric assets, in an effort to beat average investment returns for their clients. They are considered risky alternative investment choices.

How can activist funds influence managers to adopt better corporate strategies?

The increased likelihood of engagement by an activist hedge fund often leads company managers and boards to make pro- active changes to corporate policy that, in general, appear to increase shareholder value and longer-term profitability of yet-to-be-targeted firms.

What is that one indication a company has become a target for activist investors?

An indication that a company might become activist investors' target is the SEC Form 13D filing, which has to be filed mandatorily when an investor buys 5% or more of a company's shares.

Do companies like activist investors?

The firms that activists target tend to underperform relative to their industry. Due to activists' aggressive attitude toward management and hostile approaches to short-term profit making, they are often perceived as “corporate raiders,” “green mailers” or “asset strippers”.