The effectiveness of institutional activism

We examined earnings forecast revisions and stock returns after release of the Focus List of poorly performing companies by the Council of Institution al Investors. Using Tobin's q as a measure of a company's ability to improv e performance, we found significant and positive abnormal forecast revision s and post-release stock returns for companies with q greater than 1. For c ompanies with q less than 1, neither forecast revisions nor post-release st ock returns were significantly different from zero. For the full sample of companies on the Focus List, regression analysis showed a significant posit ive relationship between forecast revisions and postrelease stock returns. These findings support our proposition that institutional activism is effec tive for underperforming companies-but only those companies with the abilit y to respond to the challenge to improve performance.