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Abstract

Vol. 58, No. 3, pp. 203-216 (2007)

“An Evaluation of Activist Funds in Japan”
Kotaro Inoue (Graduate School of Business Administration, Keio University), Hideaki Kato (Graduate School of Economics, Nagoya University)

This paper attempts to identify the characteristics of the firms whose stock is purchased in a large block by activist funds, and to examine the stock price behavior surrounding the block share purchase (or sales) announcement day in Japan. Our results show that ROE and PBR of the target firms are lower than those of comparable firms. Block share purchase by activist funds are associated with an increase in shareholders' value of the target firms at the announcement day. This increase in value does not disappear in the long-term or even after the activist funds sell their block shares for most funds. Our results are consistent with the shareholder maximization hypothesis. However, this is not the case for a fund aiming at extremely short-term gains. An increase in share value at the announcement period vanishes until the fund disinvests. Interestingly, we did not find evidence that the myopic fund destroys firm value even when we extend our sample period up to 100 days after the exit day.