Activist Investment Target Selection: A Mixed-Method Approach

Abstract

Activist investment funds including Elliott Management, Trian Partners, and Pershing Square Capital Management take significant stakes in companies with goals of creating positive returns for both the firm and its investors. As shareholders of large stakes in various companies, activist investors have the power and ability to urge the board of any given company to take actions such as firing a CEO, merging with another company, divesting its assets, or restructuring. Activist investors will go to great lengths ensure compliance with these suggestions and often release white papers, websites, and presentations to communicate these goals to both the companies themselves and investors in their fund and the target company. Institutional and retail investors alike recognize the power of activist investors and many would find it useful to know if their potential investment would be a likely target for activism. Despite the value of understanding which firms may be potential targets for activist investment, current research in this area is very limited, meaning that this topic merits further research and investigation. This thesis will use a mixed-method approach to answer its core research goals of creating a list of financial qualities that activist investment targets share at the time of interest and investment. To do so, high-level case studies of Procter & Gamble and Occidental Petroleum were performed in conjunction with analysis of qualitative characteristics of activist investment communications including white papers, press releases, and shareholder letters via Yoshikoder which compiled communications trends across a variety of different word categories including those relating to corporate social responsibility. Observations from these two pieces of analysis were used to perform the quantitative portion of the study using SAS, Excel, and R where quarterly data from 2011 through 2018 was analyzed.