Post by Duke University - The Fuqua School of Business

“Twenty years ago, the view was that you can’t attack big companies. But over time activists started targeting bigger firms. PepsiCo has been attacked. Disney has been attacked. Salesforce has been attacked.” New research from Prof Vish Viswanathan shows how hedge funds may coordinate activist campaigns without ever formally coordinating. Key insights: • Activist campaigns are expensive, especially at large companies where no single fund can easily build a sufficiently large position. • Securities laws require disclosure when investors formally coordinate, creating incentives to find other ways to attract allies. • Activist investors can signal one another through their trades, with stock-price movements conveying information about potential opportunities. • Followers may interpret unusual trading activity as evidence that a campaign could succeed and decide to build positions of their own. • This "leader-follower" dynamic helps explain why multiple activists often emerge around the same target company. • The mechanism may be particularly important as activists increasingly target large firms “Think about a company with a market capitalization of $400 billion. Even 5% of stock would be $20 billion. No fund can accumulate $20 billion. They may still want to make changes in the way the company is run, but they need other activists to also come in,” Viswanathan said. #ShareholderActivism #CorporateGovernance #HedgeFunds #Investing #CapitalMarkets #FinanceResearch #Leadership #BusinessStrategy Doruk Cetemen Gonzalo Cisternas Aaron Kolb