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It is also the first to explore the effect of activism on the equilibrium outcome in markets for corporate transactions, in particular in markets with heavy exposure to activists.
Authors establish that there are two channels through which activism pressure influences corporate transaction activity, through target firms and through firms under activism threat. They analyze the impact of activism threats both at the level of individual firms, as well as aggregated at the 3-digit SIC industry level, using the frequency of recent activist campaigns in the industry and also the jumps in activists hedge funds' stakes at the industry level as their measures. Both channels lead to firms becoming more likely to receive merger bids, making more divestitures, and making fewer acquisitions, but with some interesting nuances: for firms that are not targets but under the threat of activism, only large firms make fewer acquisitions.
They estimate that firms in industries in the top quintile of activism pressure (measured by their industry threat variable) sell on average about 23% more assets, and make close to 12% less acquisitions. The overall impact that they attribute to firms under activism threats is substantial relative to that activist targets.
They consider whether this squeeze in real asset liquidity has an effect both on transaction volume and on transaction prices in highly affected industries. They find that outside acquirers - private equity funds, private firms, and listed firms in other industries - provide liquidity and that their acquisition volume increases in affected industries.