Abstract
Publicly-listed companies increasingly face pressures from the public equity market. Recently these market pressures have arisen from activist hedge funds who buy blocks of shares in a firm’s stock with the intent to intervene in the firm’s management. Despite the growing presence of activist investors, the nature of strategies that garner attention from these investors is not well known. This study uses the theoretical lens of a lemons problem in strategies, arising from information asymmetry and adverse selection issues in public equity markets, to argue that as companies’ strategies are incongruent with the expectations of market participants and therefore more difficult to understand, they are prone to public market dissent and likely to garner more attention from investors seeking involvement in management. Using a hand-collected proprietary database of SEC 13D filings and proxy statements, we find that companies’ increasing levels of strategic incongruence tend to be positively associated with attracting proactive investor attention.
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