Adrian Aycan Corum

Activist Settlements (Job Market Paper)

Recently, activist investors have been reaching settlements with boards more often than they have been challenging boards in a proxy fight. In this paper, I provide a theoretical framework to study the economics of these settlements. The activist can demand that his proposal be implemented right away (“action settlement”) or demand a number of board seats (“board settlement”), which also gives the activist access to better information. I find that the incumbent’s rejection of board settlement reflects more of its private information than the rejection of action settlement does. Therefore, demanding board settlement increases the activist’s credibility to run a proxy fight upon rejection and leads to a higher likelihood of reaching a settlement in the first place. I draw several implications and empirical predictions of my model, e.g., related to shareholder value, costs of proxy fight, and activist expertise. Although the average shareholder value conditional on reaching a board settlement is always smaller (compared to action settlement), demanding board settlement can result in a higher ex-ante shareholder value. Furthermore, value-destroying proposals are not typically implemented following settlements, but rather after the activist wins a proxy fight.

Shareholder Activism: The Benefit of Suspicion (Work in progress)

• Adrian Corum (Working), Activist Settlements. Abstract

  Recently, activist investors have been reaching settlements with boards more often than they have been challenging boards in a proxy fight. In this paper, I provide a theoretical framework to study the economics of these settlements. The activist can demand that his proposal be implemented right away (“action settlement”) or demand a number of board seats (“board settlement”), which also gives the activist access to better information. I find that the incumbent’s rejection of board settlement reflects more of its private information than the rejection of action settlement does. Therefore, demanding board settlement increases the activist’s credibility to run a proxy fight upon rejection and leads to a higher likelihood of reaching a settlement in the first place. Moreover, obtaining fewer seats can increase the activist’s real control within the board. I draw several implications and empirical predictions of my model, e.g., related to shareholder value, costs of proxy fight, and activist expertise. Although the average shareholder value conditional on reaching a board settlement is always smaller (compared to action settlement), demanding board settlement can result in a higher ex-ante shareholder value. Furthermore, value-destroying proposals are not typically implemented following settlements, but rather after the activist wins a proxy fight.

• Doron Levit and Adrian Corum (2015), Corporate Control Activism, Journal of Financial Economics, 133(1), 1-17, July 2019 (). Abstract

  We identify a commitment problem that prevents bidders from unseating resisting and entrenched incumbent directors of target companies through proxy fights. We discuss potential remedies and argue that activist investors are more resilient to this commitment problem and can mitigate the resulting inefficiencies by putting such companies into play. This result holds even if bidders and activists have similar expertise and can use similar techniques to challenge the incumbents, and it is consistent with the evidence that most proxy fights are launched by activists, not by bidders. Building on this insight, we study the implications of activist interventions on the M&A market.