Activist hedge fund success: The role of reputation

Wiersema, Margarethe F.; Ahn, Albert M.; Zhang, Yu

doi:10.1002/smj.3210

Cited by 22 publications

(13 citation statements)

References 63 publications

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“…Second, by studying the voluntary disclosure of firms' climate change risk exposure, we add to the literature that examines the mandatory disclosure of firms' nonfinancial information (e.g., Ioannou & Serafeim, 2019; Krueger, 2015a). Third, this study contributes to the strategy and management literature that examines how shareholders shape corporate behavior (e.g., Chen & Feldman, 2019; DesJardine & Durand, 2020; Reid & Toffel, 2009; Wiersema, Ahn, & Zhang, 2020). While this literature typically considers shareholders as one homogenous group, or only considers one specific subset of shareholders (e.g., hedge funds), our study accounts for the heterogeneity among shareholder types and examines how these differences influence corporate behavior.…”

Section: Introductionmentioning

confidence: 90%

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Shareholder activism and firms' voluntary disclosure of climate change risks

Flammer

Toffel

Viswanathan

2021

Strategic Management Journal

252

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Research Summary This article examines whether—in the absence of mandated disclosure requirements—shareholder activism can elicit greater disclosure of firms' exposure to climate change risks. We find that environmental shareholder activism increases the voluntary disclosure of climate change risks, especially if initiated by institutional investors, and even more so if initiated by long‐term institutional investors. We also find that companies that voluntarily disclose climate change risks following environmental shareholder activism achieve a higher valuation postdisclosure, suggesting that investors value transparency with respect to firms' exposure to climate change risks. Managerial Summary Climate change poses increasing risks to companies. Yet, despite the growing importance of climate change risks, little is known about companies' exposure to climate change risks, their disclosure of these risks, and what strategic actions they take to manage and mitigate these risks. In this study, we examine whether—in the absence of mandatory disclosure—shareholders can elicit greater corporate transparency with respect to climate change risks. We find that shareholder activism is effective, especially if initiated by long‐term institutional investors. We also find that the stock market reacts positively to companies' climate risk disclosure following environmental shareholder activism, suggesting that investors value transparency with respect to firms' exposure to climate change risks.

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Section: Introductionmentioning

confidence: 90%

“…11 11 See also the related literature on hedge fund activism that examines the various ways in which hedge funds pressure the management to rectify potential inefficiencies (e.g., Chen & Feldman, 2019; DesJardine & Durand, 2020; Wiersema et al, 2020). As mentioned above, hedge funds are one specific example of institutional investors.…”

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confidence: 99%

Shareholder activism and firms' voluntary disclosure of climate change risks

Flammer

Toffel

Viswanathan

2021

Strategic Management Journal

252

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“…Going one step farther, future research may also study the different tactics employed by various types of activists. Do hedge fund activists have differing effects on targeted firms’ strategic actions when they are more or less aggressive in their campaigns (Wiersema et al, 2020)? Do outcomes differ when campaigns are settled privately or when they conclude by proxy battle (Bebchuk, Brav, Jiang, & Keusch, 2020)?…”

Section: Discussionmentioning

confidence: 99%

“…Chen et al, 2020; S. Chen & Feldman, 2018; DesJardine & Durand, 2020; DesJardine et al, in press; Shi, Connelly, Hoskisson, & Ketchen, 2020; Wiersema, Ahn, & Zhang, 2020). The dominant focus so far has been on how these activists can improve targeted firms’ share prices by intervening with demands aimed at reforming corporate governance, improving operational efficiency, and narrowing corporate scope.…”

Section: Conceptual Backgroundmentioning

confidence: 99%

Different Horizons: The Effects of Hedge Fund Activism Versus Corporate Shareholder Activism on Strategic Actions

DesJardine

Shi

Sun

2021

Journal of Management

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How do firms alter their strategic actions when targeted by different types of activist shareholders? We argue that hedge fund activists threaten firms in ways that lead them to conserve resources and to scale back and simplify their strategic actions, which refer to long-run competitive actions requiring substantial investment. By comparison, corporate shareholder activists bestow firms with new resources and freedoms that increase their flexibility to expand and complexify their strategic actions. Using a matched sample and difference-in-differences methodology, we find support for our theory: Firms targeted by hedge fund activists decrease the intensity and complexity of their strategic actions, while firms targeted by corporate shareholder activists increase the intensity and complexity of those actions. Our study contributes to research on shareholder governance and competitive dynamics by highlighting the differential effects of activist shareholders on targeted firms’ strategic actions.

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“…Although AHFs are becoming increasingly important sources of activist pressure on company managements in the UK (Becht et al ., 2009; Becht et al ., 2017), most research on hedge fund activism has been conducted in the USA (where such activity is most widespread; Gospel and Pendleton, 2014; Wiersema, Ahn and Zhang, 2020). This research focuses on observable interventions, such as proxy fights, to put pressure on management (Aguilera, Federo and Ponomareva, 2019).…”

Section: Literature Reviewmentioning

confidence: 99%

Activist Hedge Funds and Takeovers: Their Effects on Employment and Performance

Kuvandikov

Pendleton

Goergen

2021

British J of Management

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This paper analyses the impact of activist hedge funds (AHFs) on post-merger workforce downsizing and operating performance. AHFs have been widely criticized for achieving short-term gains at the expense of other stakeholders, such as employees. The results show that AHF ownership and presence in acquiring firms is a significant determinant of post-merger employment reductions. There is little evidence that these mergers and acquisitions have better operating performance relative to other takeovers. However, there is a negative effect of AHF ownership on labour productivity. Overall, the results are consistent with the view that AHF involvement in takeovers does not lead to sustained gains in performance. 1 In 2015, Trian owned a 7.2% stake in Pentair plc and urged the company to increase value by facilitating 'prudent industry consolidation'. In that year, Pentair acquired a privately held component manufacturer for $1.8 billion in cash. In 2017, Pentair sold a valves and controls business it had acquired a few years earlier for $3.2 billion and decided to split its largest businesses, electrical and water products, into two separate companies (The Deal Pipeline, 2017).

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Activist hedge fund success: The role of reputation

Cited by 22 publications

References 63 publications

Shareholder activism and firms' voluntary disclosure of climate change risks

Shareholder activism and firms' voluntary disclosure of climate change risks

Different Horizons: The Effects of Hedge Fund Activism Versus Corporate Shareholder Activism on Strategic Actions

Activist Hedge Funds and Takeovers: Their Effects on Employment and Performance

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