Market reactions on shareholder activism through open letters

Abstract

To position themselves in the competitive landscape of fund collection, activist investors have to generate public awareness for their actions and differentiate themselves from other investors. Thereby, the activist investor Petrus Advisers predominantly uses the instrument of open letters in daily newspapers. By its concentration on this single instrument, Petrus Advisers allows us to analyze shareholder activism not only from an overall investor’s case study perspective but also with a focus on a single tool of activism. We examine market reactions caused by these open letters on the target companies’ share prices with a regional focus on Continental Europe. The analysis of 42 open letters shows that only initial publications addressed directly to the management board of the target companies induce positive market reactions. In addition, less profitable firms and companies with a larger number of employees generate greater positive stock price reactions. Based on the results, open letters might not be the most favorable single instrument for activist investors in Europe.