Blockholder Activism and Stock Price Information Quality

Abstract

Using an extensive blockholder dataset, we find that blockholder activism impairs various proxies of the information quality of stock prices. These effects are concentrated on blockholders who are hedge funds, individuals, or corporations who rely on their own capital to acquire block ownership and intend to improve corporate governance and firm performance. By contrast, those who are parent companies of target firms, or acquire their blocks through family bequests or gifts do not influence information quality. Our findings show that activism influences stock price information quality through uncertainty about activism outcomes and the market valuation of this activity.