Essays In Corporate Finance

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Doctor of Philosophy (PhD)
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Finance and Financial Management
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In the first chapter, "Activist Settlements'', I provide a theoretical framework to study the economics of settlements between activist investors and boards. 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. The second chapter, "Corporate Control Activism'', co-authored with Doron Levit, studies the role of activist investors in the M&A market. Our theory proposes that activist investors have an inherent advantage relative to bidders in pressuring entrenched incumbents to sell. As counterparties to the acquisition, bidders have a fundamental conflict of interests with target shareholders from which activist investors are immune. Therefore, unlike activists, the ability of bidders to win proxy fights is very limited. This result is consistent with the large number of activist campaigns that have resulted with the target's sale to a third party and the evidence that most proxy fights are launched by activists, not by bidders.

Doron Levit
Bilge Yilmaz
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