Date of Award

2022

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Graduate Group

Finance

First Advisor

David K. Musto

Second Advisor

Bilge Yilmaz

Abstract

The goal of this dissertation is to deepen our understanding of corporate governance and shareholder activism.

The first chapter, "The Roles of Activists in Boardrooms: Advisors and Supervisors", studies the effects of activist directors on firm outcomes. Using a unique hand-collected data set of activist directors' committee appointments, I show that their impacts depend on whether they sit on advisory or monitoring committees. Shareholders benefit from the appointments of activist directors: the average abnormal return increases by 1.9% and 1.4% around the day of advisory and monitoring directors' appointments, respectively. By using close-call director election results in a regression discontinuity design, I provide causal evidence that activist hedge funds perform two distinct governance roles of advising and monitoring, with each role producing different outcomes. Upon being appointed to advisory committees, activist directors increase operating performance by enhancing profitability and internal capital allocation. They also increase corporate innovation, acquisitions, and divestitures to drive long-term growth. Upon their appointments to monitoring committees, activist directors curb agency problems by increasing shareholder payouts, divestitures, CEO turnover, and pay-performance sensitivity while decreasing acquisitions. My findings shed light on the roles of activists as advisors and supervisors. The second chapter, "The Aftermath of Settlements: Hedge Fund Activism and Corporate Risk-Taking", studies the effects of activist settlements on corporate risk-taking using board settlements and hand-collected golden leash agreements data. I find causal evidence against the claim that board settlements tilt the direction of management toward short-termism, leading to excessive risk-taking. I identify two mechanisms that explain the decrease in corporate risk-taking: increased board monitoring and change in ownership structure. Taken together, my findings show that activists decrease corporate risk-taking, causing improvements in long-term firm value.

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