Robert L. Chapman, Jr., the founder of Chapman Capital, a Los Angeles-based hedge fund, is no relation to the late lexicographer Robert L. Chapman, who is often credited with modernizing the venerable Roget’s International Thesaurus (he edited the fourth and fifth editions). Chappy, as the latter was known, taught medieval literature at Drew University and took on the thesaurus work to help pay the bills; Chapman, Jr., who goes by Bob, suffers from no lack of cash, but he has a similarly large (he might say gargantuan) vocabulary. Bob writes letters—publicly filed with the Securities and Exchange Commission—that no recreational user of, say, the Microsoft Word thesaurus could dare parse, let alone compose. A sampling of Chapman’s correspondence from the past two months reveals the following usages: _“_pretermit,” “fustigation,” “macerate,” “ablated,” “accretive,” “remora,” “phlebotomizing,” “gasconade.” Only occasionally does he bother to define his terms for the benefit of the less literate. (“ ‘Remora’: any of several marine fishes of the family Echeneidae, having on the head a sucking disk with which they attach themselves to sharks; see volatility injected into other activist portfolios due to the remora’s often swashbuckling behavior.”) “There is a cacophony coming out of my mouth,” he said, the other day, over the telephone.
Bob Chapman is what’s known as a shareholder activist—a breed of corporate raider who, out of some combination of self-love and Robin Hood-ish altruism, wages public wars against the highly paid leadership of underperforming corporations. His literary genre is that of Schedule 13D, a form that investors are required to submit upon acquiring a five-per-cent ownership stake in any public company. Item No. 7 on the form calls for “material to be filed as exhibits,” which some activists have interpreted as an invitation to attach a free-form personal essay. Chapman sent his first 13D zinger in 1997 but returned to the activist scene only recently, after taking a self-styled “sabbatical” to travel the world in the wake of a surfing accident. (Like any showboat, Chapman has his detractors; some hedge-fund types snicker that the mishap occurred while he was body surfing.)
As with all genres, the 13D attack letter has its tropes: macho swagger about work ethic, war metaphors, regional stereotyping. Chapman’s contributions stand out, however, with a baroque style that is reminiscent of David Foster Wallace: heavy on footnotes (there are fourteen in one paragraph of a recent filing) and on wordplay (no alliteration is too much: “expeditious exercise,” “tutelary tactics,” “insidious ink”). In early June, Chapman fired off a letter (“Dear Denny”) to the C.E.O. of the Dallas-based software company Carreker, whom he called “Long Winder of the Year.” “I have nightmares involving my choking down gourmet tuna sandwiches and uninformed, ‘long-term’ business judgments, both being served in abundant quantity by you and your Texas ‘pardners,’ ” he wrote. (At one point, he referred to the C.E.O.’s brother “Jimbo,” whose “bloodline,” in a recent press release, had evidently “pressed the surface like a varicose vein.”)
A few weeks later, Chapman addressed the board of Sunterra, an international resort company whose European division he described as “a malignant cancer ulcerating” the healthier North American branch. And this past month he tore into Mr. John C. Lewis, of Vitesse Semiconductor Corporation, writing, “One wonders . . . how you possibly can be trusted to wean Vitesse executives away from sucking on [the company’s] own stock options areola.”
“It literally is a thankless job,” Chapman said, of his literary efforts on behalf of shareholders. He yearns, as he has written more than once, for “the ephemerally salubrious separation of management from ownership.” In the case of Carreker and Sunterra, he may be getting his wish; both companies have announced that they are looking into selling.
Chappy, the thesaurus editor, in a preface to the 1986 New Dictionary of American Slang, wrote about the “special languages of subcultures,” which have historically been responsible for giving us lively if “unrespectable” new terminology. He mentioned “hoboes,” “gypsies,” and “cowboys.” “We must note that some of these traditional spawning grounds for slang have lost their productivity,” he said. If only he’d lived to hang around with some hedge-fund managers.
The dissertation contains three essays in corporate finance. The first essay examines to what extent shareholder gain from activism is the result of wealth transfer from employees of a firm targeted by activism. My baseline results show that target firms experience underfunding in defined benefit employee pension plans after acts of activism. My evidence suggests that the underlying mechanism of this wealth transfer is the agency conflicts between CEO-shareholder alliance and CEO-worker alliance. My identification strategy is to examine possible alternative explanations. My various tests reject alternative hypothesis such as sample attrition, management’s voluntary reforms, activists stock-picking skills, and the changes due to mean reversion. I also find that target firms experience funding shortfalls after activism. It appears that the underlying mechanism is the degree of managers’ entrenchment. Entrenched managers tend to create a worker-management alliance using employee stock ownership. Consistent with this hypothesis, target firms with employee stock ownership in the own company are less likely to experience funding shortfall. In the second essay, analyzing texts in Schedule 13D filings, I address important questions regarding shareholder activism: which forms of activism increases firm value and under what circumstances? I show that investors respond more positively to activist shareholders who use soft activism, communicating with their target firms’ managers or other shareholders rather than a harder approach. Overall, I provide empirical evidence that soft shareholder activism is value-enhancing. In the third essay, I show that a local culture of altruism influences corporate social responsibility (CSR). I measure the level of local altruism by the amount of contributions to charitable, educational, religious organizations, and other cash gifts. I find evidence of a positive relation between local altruism and CSR scores of firms headquartered in a US county. I also find that increased CSR concerns of firms headquartered near altruistic communities have a negative impact on stock returns. Overall, my empirical evidence shows that local culture affects firms’ CSR polices and investors who invest in companies located in altruistic communities react more to the increase in concerns than increase in strengths of CSR.
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