Abstract
Is reduction in supplier costs a significant channel for value creation by activist investors? Using a comprehensive sample of shareholder activism during 1994–2015, and addressing endogeneity concerns, we find significant economics effects on the profits and capital investment of the target's suppliers after intervention. Consistent with the predictions of the incomplete contracting and bargaining literatures, factors that weaken (strengthen) the bargaining power of suppliers relative to targets amplify (dilute) the spillover effects on suppliers. The results are robust to the alternative hypotheses of latent industry effects on suppliers and stock picking by activist investors.
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