This is the first study on a relatively new phenomenon of “activist risk arbitrage”, in which some shareholders attempt to change the course of an announced M&A deal through public campaigns and appraisal appeals in order to profit from improved terms for either target or acquirer shareholders. Compared to conventional (passive) risk arbitrageurs, activist arbitrageurs are more likely to select deals that are susceptible to managerial conflicts of interest, including going-private deals, “friendly” deals, and deals with lower announcement premiums. While activist risk arbitrage does not significantly change the probability of deal completion, it increases the sensitivity of deal completion to market price signals. Finally, activist risk arbitrage yields significantly higher returns than passive arbitrage, with little incremental deal risk.
Tao Li joined Warwick Business School as an Assistant Professor of Finance in 2013. Tao’s research focuses on corporate finance, corporate governance and investments. His recent work studies how hedge funds acquire and trade on complex information, as well as conflicts of interest in the shareholder advisory industry. Tao’s work has been presented at the SFS Finance Cavalcade, AFA, EFA, and conferences organised by the SEC, CEPR, European Corporate Governance Institute, and Columbia Law School. Tao has a PhD in economics and a masters in statistics, both from Columbia University. He also holds graduate and undergraduate degrees in architecture.
This seminar is organised in association with the Cambridge Corporate Governance Network (CCGN).