Activist investors extract existing cash flow rather than create value in target firms

Evidence

A shareholder, typically a wealthy hedge fund manager, who uses a large equity stake in a corporation to pressure or threaten management to make changes that are profitable to the investor. Activist investors often work together, in what is called a “wolf pack,” a practice that was outlawed until 1992. Activist shareholders claim they are merely aiming to improve a company’s operations or financial stability, but they have no incentive to produce value, only extract it. They typically have two goals: increase cash flow over which the company has control and extract that cash flow. Similar to the financial engineering strategies of private equity, activist investors pressure their targets to utilize mass layoffs, corporate tax evasion, price gouging, corporate asset sales, and acquisitions of cash-rich companies. Extracting the cash is then accomplished through dividends and stock buybacks. Formerly known as a corporate raider. — Andrew deWaard, Derivative Media, 482

Categorization

• DEFINE: Defines activist investing and its wolf pack mechanism clearly for later tracing through the finance-to-form argument.
• XREF: Activists using layoffs, buybacks, and asset sales maps onto the reader’s prior examples of industry-shaping finance (private equity rollups). — connects to: Traditional conglomerates spent central bank money on share buybacks instead of investment — Yanis Varoufakis, Technofeudalism: What Killed Capitalism, 376
• corroborated: 2 independent passages support this claim — Andrew deWaard, Derivative Media: How Wall Street…, 482