Lucian A. Bebchuk, Alon Brav, Robert J. Jackson & Wei Jiang, Pre-Disclosure Accumulations by Activist Investors: Evidence and Policy, 39 J. Corp. L. 1 (2013).
Abstract: The Securities and Exchange Commission (SEC) is currently considering a rulemaking petition requesting that the Commission shorten the ten-day window, established by Section 13(d) of the Williams Act, within which investors must publicly disclose purchases of a five percent or greater stake in public companies. In this Article, we provide the first systematic empirical evidence on these disclosures and find that several of the petition’s factual premises are not consistent with the evidence. Our analysis is based on about 2,000 filings by activist hedge funds during the period of 1994–2007. We find that the data are inconsistent with the petition’s key claim that changes in market practices and technologies have operated over time to increase the magnitude of pre-disclosure accumulations, making existing rules “obsolete” and therefore requiring the petition’s proposed “modernization.” The median stake that these investors disclose in their 13(d) filings has remained stable throughout the 17-year period that we study, and regression analysis does not identify changes over time in the stake disclosed by investors. We also find that: * A substantial majority of 13(d) filings are actually made by investors other than activist hedge funds, and these investors often use a substantial part of the ten-day window before disclosing their stake. * A significant proportion of poison pills have low thresholds of 15% or less, so that management can use 13(d) disclosures to adopt low-trigger pills to prevent any further stock accumulations by activists — a fact that any tightening of the SEC’s rules in this area should take into account. * Even when activists wait the full ten days to disclose their stakes, their purchases seem to be disproportionately concentrated on the day they cross the threshold and the next day; thus, the practical difference in pre-disclosure accumulations between the existing regime and the rules in jurisdictions with shorter disclosure windows is likely much smaller than the petition assumes. * About ten percent of 13(d) filings seem to be made after the ten-day window has expired; the SEC may therefore want to consider tightening the enforcement of existing rules before examining the proposed acceleration of the deadline. Our analysis provides new empirical evidence that should inform the SEC’s consideration of this subject — and a foundation on which subsequent empirical and policy analysis can build.