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 fol lowing the contest. Management turnover is concentrated among poorly p erforming firms in which outside blockholders acquire an ownership sta ke. These blockholders appear to facilitate post-contest asset restruc turings that increase the value of the target and improve operating pe rformance. In the absence of an outsider blockholder, managers typical ly retain their positions despite poor pre-contest performance and the use of value-reducing defensive tactics during the control contest. W e conclude that monitoring by active outside investors facilitates val uable internal control efforts.