Effect of Activist Investing on Stock Returns in the Restaurant Industry
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Publisher:The Ohio State University
Series/Report no.:The Ohio State University. Department of Finance Honors Theses; 2017
According to Bloomberg, fourteen percent of large firms in the restaurant industry (market capitalization greater than $100mm) have activist shareholders. These investors’ goal is to drive shareholder value, but whether activist investors accomplish this goal is unclear. The purpose of my research is to determine whether activist investors create lasting value in the restaurant industry by streamlining organizational efficiency, or whether they ultimately destroy shareholder value through cost cutting and firm restructurings. The methodology used involved examining stock return data from public firms in the restaurant industry that have been targeted or taken over by activists and comparing these returns to the returns of the industry overall. The stock prices from each company were analyzed over four different time horizons including: (1) a year before the announcement of activist involvement; (2) ten days before and ten days after the announcement of activist involvement; (3) a year after the announcement; and (4) up to present day. This methodology allows us to see how effective these activist investors have been at creating value. If value has been created, the stock price will have gone up when compared to the overall industry. If value has been destroyed, the stock price will have declined. The results indicate that four of the ten firms analyzed showed higher long-term returns than the overall restaurant industry index, and these firms that have outperformed the index have done so by an average margin of forty percent. However, forty-five percent of companies have seen negative returns since an activist’s involvement was announced. This data suggests that activist shareholders’ methods are creating mixed results with some big hits and a fair amount of missed targets. This research provides a framework for future research that could shed additional light on the impact of activists in other industries and adds to the current debate regarding the effect of activist investors in the financial markets. As firms like Bob Evans and Bravo Brio currently engage with activists, it is clear that these investors are not leaving this market anytime soon.
Academic Major: Finance