Myopic Investor Myth Debunked: The Long-Term Efficacy of Shareholder Advocacy in the Boardroom

Goodwin, Shane C.

doi:10.2139/ssrn.2450214

“…We document that firms appointing Activist IDs experience a larger increase in firm value both in the short and long term and that these value increases for firms appointing Activist IDs are greater than those for firms experiencing activism events without board representation. The results complement those of Goodwin, Singh, Slipetz, and Rao (2014), who show that activist shareholders' board representation sends a signal of these shareholders' long-term commitment to target firms, highlighting the importance of board representation as an integral part of shareholder activism.…”

Section: Introductionsupporting

confidence: 74%

Activist-Appointed Directors

Kang¹,

Kim

²

,

Kim³

et al. 2021

J. Financ. Quant. Anal.

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“…Several studies (Clifford, 2008;Becht et al, 2009;Bebchuk et al, 2013Bebchuk et al, , 2015Goodwin, 2014;Gow et al, 2014;Fos, 2015) of hedge fund performance examine their impact on three operating ratios: ROA, Tobin's Q (the ratio of the market value of the company to its book value, sort of ) and return on shareholders' equity (ROE). Let us examine these operating ratios for our double sample.…”

Section: Operating Performancementioning

confidence: 99%

“…Studies describing what has happened to companies after the arrival of an activist fund have found a mixture of effects: increased divestiture, decreased acquisition activity, higher probability for the targeted firm being sold out, lower cash balances, higher payout ratios, greater leverage, higher CEO turnover and lower CEO compensation, reduced investment, 'improved' return on assets (ROA) and improved ratio of enterprise 'market' value to its book value (Tobin's Q). But these effects are not linked to specific hedge fund strategies and, though often seen as positive by researchers, it remains unclear whether companies and their shareholders have really benefited from, or been harmed by, these effects (Briggs, 2007;Gillan and Starks, 2007;Bebchuk et al, 2013Bebchuk et al, , 2015Goodwin, 2014;Gow et al, 2014). 6.…”

Section: Introductionmentioning

confidence: 99%

The Game of 'Activist' Hedge Funds: Cui Bono?

Allaire

¹

,

Dauphin

²

2015

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

Allaire

¹

,

Dauphin

²

2016

View full text Add to dashboard Cite

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.

show abstract

Myopic Investor Myth Debunked: The Long-Term Efficacy of Shareholder Advocacy in the Boardroom

Cited by 4 publications

References 55 publications

Activist-Appointed Directors

Activist-Appointed Directors

The Game of 'Activist' Hedge Funds: Cui Bono?

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

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