Hedge Fund Activism and Long-Term Firm Value

Cremers, Martijn; Giambona, Erasmo; Sepe, Simone M.; Wang, Ye

doi:10.2139/ssrn.2693231

Cited by 29 publications

(21 citation statements)

References 16 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…and by the use of matching techniques (What is the matching algorithm that offers the best fit with the specific setting?). Debates abound about proper placebo pool selection and use of matching techniques, which can lead to controversies and justify the importance of replication in our field (see controversy on financial activism: Bebchuk, Brav, Jiang, & Keusch, 2017;Cremers, Giambona, Sepe, & Wang, 2018). Furthermore, quasi-replications as defined by Bettis et al (2016) allow to go beyond statistical matching issues and confirmation tests by facilitating the analysis of different theories (e.g., CSR activism vs. CSR visibility).…”

Section: Discussionmentioning

confidence: 99%

Do investors actually value sustainability indices? Replication, development, and new evidence on CSR visibility

Durand

Paugam

Stolowy

2019

Strategic Management Journal

134

View full text Add to dashboard Cite

Research Summary In this study, we replicate and expand Hawn et al.’s study (Strategic Management Journal, 2018, 39, 949–976) that used Dow Jones Sustainability World Index (DJSI) events to measure variations in firms' Corporate Social Responsibility (CSR)‐activism and examined their effect on a firm's stock price. We use DJSI events to capture variations in firms' CSR visibility, holding CSR activism constant by restricting our analyses to CSR‐equivalent firms. First, we find similar results on stock price (i.e., no impact) and on trading volumes. Second, because professional market participants pay more attention to CSR‐oriented firms and use visible cues such as DJSI events, we study and find that additions to DJSI lead to more analysts following a firm, and that continuations on the DJSI lead to an increase in equity being held by long‐term investors. Managerial Summary We replicate and complement a recent study that showed that the events of a firm's addition, continuation, or deletion in a major sustainability index (DJSI) had little impact on stock market reactions (Hawn et al. Strategic Management Journal, 2018, 39, 949–976). We redefine the comparison set that was previously used and compare across observationally equivalent firms in terms of CSR orientation in order to isolate the visibility effect of DJSI events. We find that these events do not significantly impact stock price and trading volumes. However, we expand the analysis and find that sustainability events attract more attention from financial analysts and lead to an increase in the percentage of shares held by long‐term investors indicative of a trend that professional investors pay more attention to CSR‐visible firms over time.

show abstract

Section: Discussionmentioning

confidence: 99%

Do investors actually value sustainability indices? Replication, development, and new evidence on CSR visibility

Durand

Paugam

Stolowy

2019

Strategic Management Journal

134

View full text Add to dashboard Cite

show abstract

“…In contrast to previous research that suggests that activists can be seen as new monitors, they claim that the role of the activist is, instead, to act as a merger and acquisition broker who helps match target and acquiring firms. Cremers, Giambona, Sepe, and Wang () recently challenged existing studies claiming that selection bias (choosing poorly performing firms as targets) is driving the positive results found in earlier studies. Using a matched sample approach, they find that firms targeted by activist hedge funds improve less in value than ex ante similar firms.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

Clustered shareholder activism

González

Calluzzo

2019

Corporate Governance

View full text Add to dashboard Cite

Research Question/Issue: This study examines activism campaigns where multiple activists simultaneously target the same firm-which we term clustered shareholder activism. Despite the growing influence of shareholder activism on corporate governance, the clustered activism phenomenon has previously only been addressed indirectly, anecdotally, or with limited data. We consider cost sharing motives for clustered activism and whether the phenomenon exerts a positive or negative impact on the performance of the target firm.Research Findings/Insights: Using a large dataset of shareholder activism events at U.S. firms, we find that clustered activism campaigns are more common at larger firms and among geographically proximate activists, which is consistent with our prediction that activists cluster to reduce the costs associated with activism campaigns. Furthermore, we find that clustered activism produces elevated profitability and abnormal returns, which is consistent with our prediction that activists cluster to address principal-agency costs.Theoretical/Academic Implications: Our study provides some of the first theoretical and empirical evidence on the clustered activism phenomenon. We contribute to the understanding of the role of shareholder activism by considering their effect on principal-agency and principal-principal problems. Our results also contribute to the literature that examines factors relating to the success of shareholder activism by documenting the effect of clustered activism on activism costs and target firm performance.Practitioner/Policy Implications: Our study adds to the debate among practitioners and regulators on the merits (or lack thereof) of clustered activism. Our findings suggest that a regulatory approach that encourages clustered activism can benefit shareholders. Video Abstract: https

show abstract

“…Activist HFs have been criticized for the “pump and dump” scheme through creating a short‐term spike in the target stock's price by wealth transfer from stakeholders to shareholders, and thus exit with a decrease in profitability left to the firm, over the long‐run. Cremers et al (2015) found that “the value of the firms in our control group increases more than the value of firms in the target group” (Coffee Jr & Palia, 2015, p. 586). They concluded that: “[I]n the years following the intervention of activist hedge funds, the firm value of hedge fund targets deteriorates (sizably) compared to control firms” (Cremers et al, 2015, p. 27).…”

Section: Resultsmentioning

confidence: 98%

“…Cremers et al (2015) found that “the value of the firms in our control group increases more than the value of firms in the target group” (Coffee Jr & Palia, 2015, p. 586). They concluded that: “[I]n the years following the intervention of activist hedge funds, the firm value of hedge fund targets deteriorates (sizably) compared to control firms” (Cremers et al, 2015, p. 27).…”

Section: Resultsmentioning

confidence: 98%

“…In this perspective, others still believe that market value in the post‐intervention period do not demonstrate causality and are not caused by HFs'engagements, rather that their possibility to impede the reversion to the mean of underperforming target firms, in fear of activist interventions' growing risk (Allaire & Dauphin, 2016; Cremers, Giambona, Sepe, & Wang, 2015). These outcomes are not significantly related to changes initiated by activist HFs (Boyson & Mooradian, 2011; Brav, Jiang, Partnoy, & Thomas, 2008; Clifford, 2008; Hamao et al, 2010; Klein & Zur, 2009, 2011).…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

New evidence on value creation through hedge fund activism: A qualitative comparative analysis

2020

View full text Add to dashboard Cite

Hedge funds' engagements do not cause value‐enhancing as acknowledged by previous research; new insights highlight how distinct strategies combine into configurational causes of value improvement of the two common short‐run and long‐run forms of market reactions. Qualitative comparative analysis is applied and uncovers several equifinal configurations associated with value creation. The results reveal that the hostility of hedge funds' tactics is a necessary condition or, in other words, a prerequisite for high short/long term abnormal returns. Corporate governance changes, financial restructurings and hostility of tactics are sufficient conditions or, in other words, a guarantee for high‐value enhancement. The findings indicate substitutive and complimentary relationships between different tactics and high short/long‐run market reaction, suggesting the complexities of value creation.

show abstract

Hedge Fund Activism and Long-Term Firm Value

Cited by 29 publications

References 16 publications

Do investors actually value sustainability indices? Replication, development, and new evidence on CSR visibility

Do investors actually value sustainability indices? Replication, development, and new evidence on CSR visibility

Clustered shareholder activism

New evidence on value creation through hedge fund activism: A qualitative comparative analysis

Contact Info

Product

Resources

About