Active investors and management turnover following unsuccessful control contests

We report that 34% of targets of unsuccessful control contents between 1983 and 1989 experience a change in top manager within two years following the contest. Management turnover is concentrated among poorly performing firms in which outside blockholders acquire an ownership stake. These blockholders appear to facilitate post-contest asset restructurings that increase the value of the target and improve operating performance. In the absence of an outsider blockholder, managers typically retain their positions despite poor pre-contest performance and the use of value-reducing defensive tactics during the control contest. We conclude that monitoring by active outside investors facilitates valuable internal control efforts.