Shareholder Activism in Small-Cap Newly Public Firms

We examine a private dataset of engagements by a UK fund in small-cap newly public firms. The fund inherits unwanted holdings from disparate investors and earns fees liquidating its portfolio. It considers activism only when blocks cannot be exited efficiently. Engagements are with firms that have f...

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Bibliographic Details
Published in:Financial analysts journal 2024-04, Vol.80 (2), p.52-73
Main Authors: Pezier, Emmanuel R., Volpin, Paolo F.
Format: Article
Language:English
Subjects:
Abnormal returns
Chairpersons
Chief executive officers
Chief executives
Corporate governance
Outside directors
Public companies
Shareholder activism
Small cap investments
Stockholders
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Summary:We examine a private dataset of engagements by a UK fund in small-cap newly public firms. The fund inherits unwanted holdings from disparate investors and earns fees liquidating its portfolio. It considers activism only when blocks cannot be exited efficiently. Engagements are with firms that have founder chairpersons or CEOs, other blockholders thought to be supportive, and few outside directors. Engagements are conducted behind-the-scenes, without involving other shareholders, are strikingly successful, and result in cumulative abnormal returns of 8% to 10% when objectives are met. The fund outperforms benchmarks, and we estimate that abnormal returns derive mostly from engagements rather than stock picking.
ISSN:0015-198X
1938-3312
DOI:10.1080/0015198X.2023.2283445