Controversial Minority Investors : An Empirical Analysis

I analyze 136 large minority block purchases made by a group of controversial investors in Europe during 1990-2001. Contrary to the hypothesis that wants these investors expropriate the target companies, there is a positive market reaction to the first public announcement of these purchases. In the long-run, controversial investors earn an abnormal profit when they sell their stakes. When they still hold their positions at the end of the sample period (31 December 2001), abnormal returns are insignificant. Neither is there evidence that their activities improve operating performance, since ROA does not improve after the acquisitions. The findings are consistent with a superior stock picking ability of these investors, but they are not consistent with the hypothesis that these investors are governance champions.