Title: Bank activism and value creation
Authors: Jun Wang - University of Western Ontario (Canada) [presenting]
Kee-Hong Bae - York University (Canada)
Keke Song - University of Melbourne (Australia)
Abstract: The aim is to investigate the impact of bank activism on target firms debtholders and shareholders by examining the abnormal bond and stock returns around shareholder activism events. We find that debtholders rather than shareholders benefit when shareholder activists are banks. We also find that relative to other activists, bank activists are more likely to target larger financial firms with higher leverage and lower credit quality and that bank activism target firms experience greater reduction in leverage ratio and improvement in credit quality. Additionally, the positive abnormal bond returns associated with bank activism only exist in the subsample of bank activism events where bank shareholder activists are also current lenders of the same target firms. We interpret these findings as follows: bank activists gain control rights through delegation of their trust business clients; the separation of cash rights and control rights associated with banks proxy holdings may cause a conflict of interests problem if bank activists also hold loan stake in the same target firms.