Influencing Control: Jawboning in Risk Arbitrage

In an 'activist risk arbitrage,' a shareholder attempts to improve terms of an announced M&A through public campaigns. Activists target deals with low premiums and those susceptible to managerial conflicts of interest, including going-private deals and deals in which CEOs receive outsized payments. Activist arbitrageurs are associated with a significant decrease in the probability that targets will be sold to the announced bidders, and an increase in the premium paid, both ex post among surviving deals and ex ante among all deals. Activist arbitrage serves as a governance mechanism in M&A and earns higher returns than passive arbitrage.