13D Filings

This dissertation explores two chapters of 13D filings. Chapter one examines the impact of activism by non-financial corporations. I find that the market reacts more favorably to corporate activism relative to non-corporate activism. This is irrespective of apparent economic links between a corporate activist and their target firm. Further, corporate activists do not facilitate takeovers in the ways traditional activist investors do. Despite this, I find that corporate activist target firms experience similar ex-post changes in cash, investment, leverage, payout policy, and profitability to non-corporate activist targets. Overall, corporate activists are beneficial to target firms, so it is important to consider them in future activist studies. Chapter two proposes that target firms of activist 13D filings are associated with a decline in the likelihood of experiencing an extreme positive return outcome; i.e., a decline in the target firm's right-tail return skewness subsequent to the 13D event. The underlying logic is that activists often take actions that increase the target firm's stock price at the expense of the small possibility of extremely favorable long-term return outcomes. Consistent with a correction of skew-induced overpricing, I report that stock price reactions to 13D filings are lower for target firms associated with higher idiosyncratic skewness. Additional evidence indicates that subsequent changes in firm investment are lower for 13D targets relative to non-13D targets. Further, ex-post extreme right-tail returns are less likely in the years after the 13D filing for targeted firms as opposed to non-targeted firms. Overall, the evidence suggests that investors downwardly revise their expectations of an extreme right-tail outcome following the involvement of activists.