The Effectiveness of Institutional Activism

Posted: 17 Sep 2001

See all articles by Gary L. Caton

Gary L. Caton

Washington State University - Department of Finance, Insurance and Real Estate

Jeffrey Donaldson

The University of Tampa - John H. Sykes College of Business

Jeremy Goh

Singapore Management University - Lee Kong Chian School of Business

Abstract

We examined earnings-forecast revisions and stock returns after release of the Focus List of poorly performing companies by the Council of Institutional Investors. Using Tobin's q as a measure of a company's ability to improve performance, we found significant and positive abnormal forecast revisions and post-release stock returns for companies with q greater than 1. For companies with q less than 1, neither forecast revisions nor post-release stock returns were significantly different from zero. For the full sample of companies on the Focus List, regression analysis showed a significant positive relationship between forecast revisions and post-release stock returns. These findings support our proposition that institutional activism is effective for underperforming companies - but only those companies with the ability to respond to the challenge to improve performance.

Suggested Citation

Caton, Gary L. and Donaldson, Jeffrey and Goh, Jeremy, The Effectiveness of Institutional Activism. Available at SSRN: https://ssrn.com/abstract=279491

Gary L. Caton

Washington State University - Department of Finance, Insurance and Real Estate ( email )

14204 NE Salmon Creek Ave.
Vancouver, WA 98686
United States
360-546-9516 (Phone)
360-546-9037 (Fax)

Jeffrey Donaldson

The University of Tampa - John H. Sykes College of Business ( email )

401 W. Kennedy Blvd.
Box 158F
Tampa, FL 33606-1490
United States
813-253-3333, ext. 3282 (Phone)

Jeremy Goh (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

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