{"id":34187,"date":"2023-11-03T16:53:47","date_gmt":"2023-11-03T16:53:47","guid":{"rendered":"https:\/\/analystprep.com\/study-notes\/?p=34187"},"modified":"2026-03-02T12:45:50","modified_gmt":"2026-03-02T12:45:50","slug":"activist-strategies","status":"publish","type":"post","link":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/activist-strategies\/","title":{"rendered":"Activist Strategies"},"content":{"rendered":"<p><script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"Which characteristic is least associated with activist investment targets?\",\n    \"text\": \"Which of the following characteristics is least likely to be associated with typical target firms for activist investment strategies?\\n\\nA. Slow growth.\\n\\nB. Negative share price trend.\\n\\nC. Strong corporate governance.\",\n    \"answerCount\": 1,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The correct answer is C. Activist investors typically target firms with perceived weaknesses or opportunities for improvement, such as slow growth or declining share prices. Companies with strong corporate governance are less likely to be targeted because they may already operate efficiently with limited scope for activist-driven changes.\"\n    }\n  }\n}\n<\/script><br \/>\n<iframe loading=\"lazy\" src=\"\/\/www.youtube.com\/embed\/HSen3JaHKwE\" width=\"611\" height=\"343\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>The goal of activist investing is typically to purchase a stake in a company (often 10% or less) and then influence certain aspects of the company&apos;s operations in order to increase shareholder value (could also be ESG motivations but commonly done for profit).<\/p>\n<h2>The Rise of Shareholder Activism<\/h2>\n<p>Activist investing has been around since the 1970s but has really taken off post-2008 financial crisis. Hedge funds often enjoy advantages in the form of less scrutiny and regulation when taking on activist campaigns. The top hedge fund activist investors currently have billions of dollars in Assets Under Management (AUM), with activist campaigns having increased approximately 5x between 2004 and 2015.<\/p>\n<h3>Typical Target Companies<\/h3>\n<p>Like a house flipper seeking a property to renovate, activist investors target companies that have not reached their full potential. If a company is already operating at its best, there&apos;s little room for improvement and limited profit potential. Hence, activist investors seek firms with one or more of these characteristics:<\/p>\n<ul>\n<li>Slow growth.<\/li>\n<li>Negative share price trend. <\/li>\n<li>Weak corporate governance.<\/li>\n<\/ul>\n<p>These characteristics suggest the potential for improvement and profit. Additionally, they indicate that shareholders might not be content with the current situation and may be open to changes activist investors propose. This enables these investors to influence company management without resorting to extreme measures such as proxy contests.<\/p>\n<h3>Typical Activist Investing Process\/Timeline<\/h3>\n<p>Activist investors work to bring about changes in a company. At any point after the third step in this process, an agreement might be reached. This indicates successful influence on the company, resulting in the implementation of new policies and procedures, which ideally boosts the value of shares.<\/p>\n<ol type=\"1\">\n<li>Identifying opportunities.<\/li>\n<li>Acquiring an initial stake in the target company.<\/li>\n<li>Announcing proposed changes.\n<ul>\n<li>Potential agreement<\/li>\n<\/ul>\n<\/li>\n<li>Threatening proxy contest\n<ul>\n<li>Potential agreement<\/li>\n<\/ul>\n<\/li>\n<li>Launching proxy contest\n<ul>\n<li>Potential agreement<\/li>\n<\/ul>\n<\/li>\n<li>Negotiating settlement\n<ul>\n<li>Potential agreement<\/li>\n<\/ul>\n<\/li>\n<li>Conducting shareholder vote<\/li>\n<\/ol>\n<h3>Tactics Activists Use<\/h3>\n<p><h4>Dissemination of Intended Changes<\/h4>\n<\/p>\n<p>Activist investors&apos; tactics involve letting their desires and intentions be known in one form or another. This may be accomplished via:<\/p>\n<ul>\n<li>Obtaining representation on the company&apos;s board. <\/li>\n<li>Writing open letters to the company&apos;s management.<\/li>\n<li>Proposing modifications during annual meetings. <\/li>\n<li>Launching media campaigns. <\/li>\n<li>Using legal actions.<\/li>\n<\/ul>\n<h4>Typical Intended Changes<\/h4>\n<ul>\n<li>Reorganizing capital structure (through share buybacks or increased dividends). <\/li>\n<li>Reducing executive compensation. <\/li>\n<li>Aligning management compensation with company performance. <\/li>\n<li>Breaking up inefficient conglomerates. <\/li>\n<li>Implementing cost-saving initiatives. <\/li>\n<li>Bringing workforce-related changes.<\/li>\n<\/ul>\n<h4>Defenses Used Against Takeovers<\/h4>\n<ul>\n<li><strong>Multi-class share structures:<\/strong> These involve adding multiple classes of shares to give more voting power to managers or founders. <\/li>\n<li><strong>Poison pill provisions:<\/strong> These provisions deter potential takeover attempts. They might kick in during a takeover, allowing existing shareholders to buy more shares at a discount, which reduces the per-share value. <\/li>\n<li><strong>Staggered board:<\/strong> This prevents swift activist influence on the board, spreading representation over time or seats.<\/li>\n<\/ul>\n<h2>Impact of Activist Investors on Company Performance<\/h2>\n<p>There is a common belief that companies subjected to activist campaigns generally enhance their efficiency and performance. Yet, this enhancement often results in increased debt. While some investors view this higher debt positively, others, particularly existing debt holders, may see it negatively.\u2003<\/p>\n<blockquote>\n<h2>Question<\/h2>\n<p>Which of the following characteristics is <em>least likely<\/em> to be associated with typical target firms for activist investment strategies?<\/p>\n<ol type=\"A\">\n<li>Slow growth.<\/li>\n<li>Negative share price trend.<\/li>\n<li>Strong corporate governance.<\/li>\n<\/ol>\n<p><strong>Solution<\/strong><\/p>\n<p><strong>The correct answer is C.<\/strong><\/p>\n<p>Activist investment strategies typically target firms where they believe there is potential for change or improvement. These strategies often involve pushing for changes in the company&apos;s management, operations, or strategic direction to unlock shareholder value. Activists may not be attracted to firms with strong corporate governance, as such firms are already well-governed and may have less room for the types of changes activists typically advocate for. Therefore, strong corporate governance is less likely to be associated with typical target firms for activist investment strategies.<\/p>\n<p><strong>A is incorrect.<\/strong> Activists may indeed target firms with slow growth because they see potential for performance improvement. Slow-growing companies may have underutilized assets or operations that activists believe can be optimized. So, slow growth is a characteristic that is often associated with firms targeted by activist investors.<\/p>\n<p><strong>B is incorrect.<\/strong> Firms with a negative share price trend may be attractive to activist investors because they believe that they can influence changes to reverse this trend and increase shareholder value. Activists often look for underperforming companies that they believe can be turned around.<\/p>\n<\/blockquote>\n<p>Reading 25: Active Equity Investing: Strategies<\/p>\n<p>Los 25 (e) Analyze activist strategies, including their rationale and associated processes<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The goal of activist investing is typically to purchase a stake in a company (often 10% or less) and then influence certain aspects of the company&apos;s operations in order to increase shareholder value (could also be ESG motivations but commonly&#8230;<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[571],"tags":[],"class_list":["post-34187","post","type-post","status-publish","format-standard","hentry","category-cfa-level-iii","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Activist Investing Strategies | CFA Level 3<\/title>\n<meta name=\"description\" content=\"Explore activist investing strategies, target firm characteristics, engagement tactics, timelines, and performance impact in CFA Level 3.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/activist-strategies\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Activist Investing Strategies | CFA Level 3\" \/>\n<meta property=\"og:description\" content=\"Explore activist investing strategies, target firm characteristics, engagement tactics, timelines, and performance impact in CFA Level 3.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/activist-strategies\/\" \/>\n<meta property=\"og:site_name\" content=\"CFA, FRM, and Actuarial Exams Study Notes\" \/>\n<meta property=\"article:published_time\" content=\"2023-11-03T16:53:47+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2026-03-02T12:45:50+00:00\" \/>\n<meta name=\"author\" content=\"Nicolas Joyce\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Nicolas Joyce\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/activist-strategies\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/activist-strategies\/\"},\"author\":{\"name\":\"Nicolas Joyce\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/393e8b0a7757cde1d197fb0c060af25f\"},\"headline\":\"Activist Strategies\",\"datePublished\":\"2023-11-03T16:53:47+00:00\",\"dateModified\":\"2026-03-02T12:45:50+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/activist-strategies\/\"},\"wordCount\":744,\"articleSection\":[\"Level III of the CFA\u00ae Program\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/activist-strategies\/\",\"url\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/activist-strategies\/\",\"name\":\"Activist Investing Strategies | CFA Level 3\",\"isPartOf\":{\"@id\":\"https:\/\/analystprep.com\/study-notes\/#website\"},\"datePublished\":\"2023-11-03T16:53:47+00:00\",\"dateModified\":\"2026-03-02T12:45:50+00:00\",\"author\":{\"@id\":\"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/393e8b0a7757cde1d197fb0c060af25f\"},\"description\":\"Explore activist investing strategies, target firm characteristics, engagement tactics, timelines, and performance impact in CFA Level 3.\",\"breadcrumb\":{\"@id\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/activist-strategies\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/activist-strategies\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/activist-strategies\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/analystprep.com\/study-notes\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Activist Strategies\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/#website\",\"url\":\"https:\/\/analystprep.com\/study-notes\/\",\"name\":\"CFA, FRM, and Actuarial Exams Study Notes\",\"description\":\"Question Bank and Study Notes for the CFA, FRM, and Actuarial exams\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/analystprep.com\/study-notes\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/393e8b0a7757cde1d197fb0c060af25f\",\"name\":\"Nicolas Joyce\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/secure.gravatar.com\/avatar\/684508c19e959bb01da12a9dc741428f559e4e5df43fc41ed68efa7f2d3b2b9d?s=96&d=mm&r=g\",\"contentUrl\":\"https:\/\/secure.gravatar.com\/avatar\/684508c19e959bb01da12a9dc741428f559e4e5df43fc41ed68efa7f2d3b2b9d?s=96&d=mm&r=g\",\"caption\":\"Nicolas Joyce\"},\"url\":\"https:\/\/analystprep.com\/study-notes\/author\/kajal\/\"}]}<\/script>\n<meta property=\"og:video\" content=\"https:\/\/www.youtube.com\/embed\/HSen3JaHKwE\" \/>\n<meta property=\"og:video:type\" content=\"text\/html\" \/>\n<meta property=\"og:video:duration\" content=\"2265\" \/>\n<meta property=\"og:video:width\" content=\"480\" \/>\n<meta property=\"og:video:height\" content=\"270\" \/>\n<meta property=\"ya:ovs:adult\" content=\"false\" \/>\n<meta property=\"ya:ovs:upload_date\" content=\"2023-11-03T16:53:47+00:00\" \/>\n<meta property=\"ya:ovs:allow_embed\" content=\"true\" \/>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Activist Investing Strategies | CFA Level 3","description":"Explore activist investing strategies, target firm characteristics, engagement tactics, timelines, and performance impact in CFA Level 3.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/activist-strategies\/","og_locale":"en_US","og_type":"article","og_title":"Activist Investing Strategies | CFA Level 3","og_description":"Explore activist investing strategies, target firm characteristics, engagement tactics, timelines, and performance impact in CFA Level 3.","og_url":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/activist-strategies\/","og_site_name":"CFA, FRM, and Actuarial Exams Study Notes","article_published_time":"2023-11-03T16:53:47+00:00","article_modified_time":"2026-03-02T12:45:50+00:00","author":"Nicolas Joyce","twitter_card":"summary_large_image","twitter_misc":{"Written by":"Nicolas Joyce","Est. reading time":"3 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/activist-strategies\/#article","isPartOf":{"@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/activist-strategies\/"},"author":{"name":"Nicolas Joyce","@id":"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/393e8b0a7757cde1d197fb0c060af25f"},"headline":"Activist Strategies","datePublished":"2023-11-03T16:53:47+00:00","dateModified":"2026-03-02T12:45:50+00:00","mainEntityOfPage":{"@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/activist-strategies\/"},"wordCount":744,"articleSection":["Level III of the CFA\u00ae Program"],"inLanguage":"en-US"},{"@type":"WebPage","@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/activist-strategies\/","url":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/activist-strategies\/","name":"Activist Investing Strategies | CFA Level 3","isPartOf":{"@id":"https:\/\/analystprep.com\/study-notes\/#website"},"datePublished":"2023-11-03T16:53:47+00:00","dateModified":"2026-03-02T12:45:50+00:00","author":{"@id":"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/393e8b0a7757cde1d197fb0c060af25f"},"description":"Explore activist investing strategies, target firm characteristics, engagement tactics, timelines, and performance impact in CFA Level 3.","breadcrumb":{"@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/activist-strategies\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/activist-strategies\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/analystprep.com\/study-notes\/cfa-level-iii\/activist-strategies\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/analystprep.com\/study-notes\/"},{"@type":"ListItem","position":2,"name":"Activist Strategies"}]},{"@type":"WebSite","@id":"https:\/\/analystprep.com\/study-notes\/#website","url":"https:\/\/analystprep.com\/study-notes\/","name":"CFA, FRM, and Actuarial Exams Study Notes","description":"Question Bank and Study Notes for the CFA, FRM, and Actuarial exams","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/analystprep.com\/study-notes\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/393e8b0a7757cde1d197fb0c060af25f","name":"Nicolas Joyce","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/analystprep.com\/study-notes\/#\/schema\/person\/image\/","url":"https:\/\/secure.gravatar.com\/avatar\/684508c19e959bb01da12a9dc741428f559e4e5df43fc41ed68efa7f2d3b2b9d?s=96&d=mm&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/684508c19e959bb01da12a9dc741428f559e4e5df43fc41ed68efa7f2d3b2b9d?s=96&d=mm&r=g","caption":"Nicolas Joyce"},"url":"https:\/\/analystprep.com\/study-notes\/author\/kajal\/"}]},"og_video":"https:\/\/www.youtube.com\/embed\/HSen3JaHKwE","og_video_type":"text\/html","og_video_duration":"2265","og_video_width":"480","og_video_height":"270","ya_ovs_adult":"false","ya_ovs_upload_date":"2023-11-03T16:53:47+00:00","ya_ovs_allow_embed":"true"},"_links":{"self":[{"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/posts\/34187","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/comments?post=34187"}],"version-history":[{"count":11,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/posts\/34187\/revisions"}],"predecessor-version":[{"id":42504,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/posts\/34187\/revisions\/42504"}],"wp:attachment":[{"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/media?parent=34187"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/categories?post=34187"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/analystprep.com\/study-notes\/wp-json\/wp\/v2\/tags?post=34187"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}