Corporate governance and hedge fund activism

Boyson, Nicole M.; Mooradian, Robert M.

doi:10.1007/s11147-011-9065-6

Cited by 150 publications

(119 citation statements)

References 53 publications

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“…Although the activist hedge funds targeting large companies get lots of media coverage, it appears from our study, and as reported in several other studies (Brav et al, 2008;Aslan and Maraachlian, 2009; Greenwood and Schor, 2009; Klein and Zur, 2009;Boyson and Mooradian, 2011;Gantchev et al, 2015), that the median company targeted by activists is fairly small (market cap = US$148 million; revenues = $201 million).…”

Section: A Matched Random Samplesupporting

confidence: 71%

“…Many studies have been focusing on the impact of activists' 13D filing on the stock price of the targeted company over a short period of time (usually 20 days before and 20 days after). Indeed, there is ample evidence of 'abnormal' returns in a short period around the public disclosure of activism (Brav et al, 2008;Clifford, 2008;Brav et al, 2009;Greenwood and Schor, 2009;Klein and Zur, 2009;Boyson and Mooradian, 2011;Gow et al, 2014;Krishnan et al, 2015), and in Europe and Asia (Becht et al, 2014). Many observers interpret this jump in stock price on the appearance of an activist fund as evidence of shareholders valuing their brand of activism.…”

Section: Introductionmentioning

confidence: 99%

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The game of ‘activist’ hedge funds: Cui bono?

Allaire

Dauphin

2016

Int J Discl Gov

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This article aims to describe the contemporary objectives and tactics of activist hedge funds as well as the actions taken by the targeted companies as a result of their intervention. In this research, we explore the consequences of activism over time (impact on operational performance and share price returns) and compare these with a random sample of firms with similar characteristics at the time of intervention; we also analyse the singularities associated with salient sub-groups of targeted firms. The sample used for our research consists of all 259 firms targeted by activist hedge funds in 2010 and 2011. We found evidence that any improvements in operating performance (return on assets, return on equity, Tobin's Q) result mainly from selling assets, cutting capital expenditures, buying back shares, reduce workforce and other basic financial manoeuvres. Although there is no evidence of deterioration over a 3-year period, the stock's performance of targeted companies over a 3-year span barely matches the performance of a random sample of companies. We found that the best way for activists to make money for their funds is to get the company sold off or substantial assets spun off. If not sold, the hedge fund episode often results for the targeted firms in change of senior management and board members, stagnation of assets and R&D. This research does not provide any evidence of the superior strategic sagacity of hedge fund managers, but does point to their keen understanding of what moves stock prices in the short term.

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Section: A Matched Random Samplesupporting

confidence: 71%

Section: Introductionmentioning

confidence: 99%

The game of ‘activist’ hedge funds: Cui bono?

Allaire

Dauphin

2016

Int J Discl Gov

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“…The impact of hedge fund activism on target firms' performance has rigorously been discussed and studied in recent decades (Klein and Zur, 2006;Brav et al, 2008;Greenwood and Schor, 2009;Boyson and Mooradian, 2011;Bebchuk et al, 2014). The empirical findings of largely documented studies are consistent with the notion that fundrelated activism generates positively significant abnormal returns around the announcement of Schedule 13D Disclosures.…”

Section: Introductionmentioning

confidence: 80%

“…A general consensus exists among the researchers that the stock market favorably reacts to the announcement of a fund's involvement in a target firm, and as a result, generates positively significant abnormal returns (Klein and Zur, 2006;Brav et al, 2008;Boyson and Mooradian, 2011). In pre-crisis sample studies, Klein and Zur (2006) report 10.3% abnormal returns over a relatively longer (-30, +30) event window including the date of notification.…”

Section: Introductionmentioning

confidence: 99%

Activist Hedge Funds: Evidence from the Recent Financial Crisis

Khan

2016

SSRN Journal

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This study extends the empirical evidence of hedge fund activism impact on target firm performance. We investigate whether activism strategies as well as their effects have changed following the recent financial crisis of [2007][2008]. The analysis is based on the U.S. data covering 112 hedge funds, 551 target firms, from 2000 to 2013. We find that returns to activism accrue to approximately 5% during the (-20, +5) event window. Activism-related categories that generate significant and positive abnormal returns include capital structure, business strategy, and general undervaluation. Since the financial crisis, business-related activism generates the highest returns, followed by activism in financially depressed firms. We also find significant cross-sectional abnormal returns, both before and during the crisis, for hedge funds who do not pre-specify an objective. One year post-activism performance suggests that target firms experience substantial improvement in value, profit margin, and investment.

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“…Activist hedge funds have been the most prominent and successful proponents of institutional shareholder activism in recent decades (Gillan & Starks, 2007). Boyson and Mooradian (2011) noted that the idea of hedge funds as activists is in direct contrast with their image as short-term, opportunistic investors. For example, in the early 2000s, prime brokerage operations of investment banks were very frequently the banks' only profitable divisions, due to heavy trading volume among their hedge fund clients.…”

Section: Iiic Active Monitoring By Shareholders -Ex Post Interventionmentioning

confidence: 99%