Returns to Shareholder Activism in Europe: And the Implications for a Shadow Investor

Henriette Søs Henriksen & Madelon Karoline Grandjean Poulsen

Student thesis: Master thesis


With the surge of shareholder activism in Europe, this study sets out to investigate the stock performance and variation in returns of European shareholder activist targets, using a sample of Western European campaigns launched between 1998 and 2017. Moreover, the opportunity for other equity funds to shadow activist efforts to their own benefit at lower costs is explored. To gain comprehensive understanding of activist campaigns in Europe, abnormal stock returns are investigated in the short and long term by application of an event study methodology comparing realized returns to the predicted normal returns according to the simple market model, CAPM, and Fama-French five-factor model. The results show that activism generates positive abnormal returns across models in the short term; however, long-term superior returns are only found for raw, CAPM, and Fama-French fivefactor adjusted returns. Cross-sectional analyses of returns uncover that characteristics unique to the target, activist, campaign, and external environment may explain variations in returns in the short-term, but findings become inconclusive for the long-term decompositions. Moreover, shadow portfolios of activist positions in Europe are composed and backtested to propose a superior semi-active investment strategy to equity funds. The results of the shadow portfolios show that while a strategy of investing in all campaigns with a 125-day investment horizon provides the largest absolute return of 659.60%, a subportfolio tracking campaigns from Anglo-American governance regime provides the best risk-adjusted return. In conclusion, this thesis contributes to previous literature by finding comprehensive evidence of superior short-term target stock returns for activist campaigns in Europe and partially in the long term. Furthermore, it can be recommended that equity funds screen for announcement of activist campaigns, thereby adopting an attractive shadow activist investment strategy to beat the market.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2018
Number of pages183