Shareholder Power and Corporate Innovation: Evidence from Hedge Fund Activism

Brav, Alon; Jiang, Wei; Ma, Song; Tian, Xuan

doi:10.2139/ssrn.2409404

Cited by 33 publications

(14 citation statements)

References 4 publications

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“…find that hedge fund activists prompt significant changes 70% of the time during the period 1994-2005, while Bratton (2007) reports a hedge fund success rate of 84% during 2002 through 2006. Brav, Jiang, Partnoy, and Thomas (2008) examine hedge fund activism during the period 2001-2006 and report a full or partial success rate of approximately 66%.Several recent studies on hedge fund activism are not directly characterized by the features inTable 2 Brav, Jiang, and Tian (2014). find that R&D expenditures drop significantly at firms targeted by hedge fund activists, but proxies for innovative activity increase, including patent counts and citations Sunder, Sunder, and Wongsunwai (2014).…”

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confidence: 99%

Thirty years of shareholder activism: A survey of empirical research

Denes

Karpoff

McWilliams

2017

Journal of Corporate Finance

207

124

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confidence: 99%

Thirty years of shareholder activism: A survey of empirical research

Denes

Karpoff

McWilliams

2017

Journal of Corporate Finance

207

124

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“… See Clifford (2008),Klein and Zur (2008),Gantchev (2013),Bebchuk, Brav, and Jiang (2014),Brav et al (2014), and particularlyBrav et al (2008), andGreenwood and Schor (2009).3 This result extends and modifies the evidence inGreenwood and Schor (2009), who argue that activists "put companies into play." 4 E.g.,Gillan and Starks 2003;Ferreira and Matos 2008;Leuz, Lins, and Warnock 2009;Aggarwal et al 2009; especially Aggarwal et al 2011).…”

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confidence: 91%

The Early Returns to International Hedge Fund Activism: 2000–2010

Becht

Franks

Grant³

et al. 2019

J Applied Corp Finance

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In this summary of their recent article in the Review of Financial Studies, the authors provide an overview of the methods and findings of the first comprehensive study of worldwide hedge fund activism—one that examined the effectiveness of some 1,740 separate “engagements” of public companies by 330 different hedge funds operating in 23 countries in Asia, Europe, and North America during the period 2000‐2010. The study reports, first of all, that the incidence of shareholder activism is greatest in companies and countries with high institutional ownership, particularly U.S. institutions. In virtually all countries, with the possible exception of Japan, large holdings by institutional investors increased the probability that companies would be targeted by activists. Nevertheless, in all countries (except for the United States), foreign institutions—especially U.S. funds investing in non‐U.S. companies—have played a more important role than domestic institutional investors in supporting activism. The authors also report that those engagements that succeeded in producing “outcomes” were accompanied by positive and significant abnormal stock returns, not only upon the announcement of the activist's block purchase, but throughout the entire holding period. “Outcomes” were identified as taking one of four forms: (1) increases in dividends or stock buybacks; (2) replacement of board members; (3) corporate restructurings such as sales or spinoffs of businesses; and (4) takeover (or sale) of the entire company. But if such outcomes were associated with high shareholder returns, in the many cases where there were no such outcomes, the eventual, holding‐period returns to shareholders, even after taking account of the initially positive market reaction to news of the engagement, were indistinguishable from zero. The authors found that activists succeeded in achieving at least one of their proposed outcomes in roughly one out of two (53%) of the 1,740 engagements. But this success rate varied considerably across countries, ranging from a high of 61% for North American companies, to 50% for European companies, but only 18% engagements of Asian companies—with Japan, again, a country of high disclosure returns but unfulfilled expectations and disappointing outcomes. Outcomes also tended to be strongly associated with the roughly 25% of the total engagements that involved two or more activists (referred to as “wolfpacks”) and produced very high returns.

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“…6. Finally, too many of the studies aiming to show statistical relationships between activism and company performance have applied the standard analytics in the field of financial economics from which they originate (for example, Brav et al, 2008Brav et al, , 2009Brav et al, , 2014Brav et al, and 2015Bebchuk et al, 2013Bebchuk et al, , 2015; the data collected is treated with multivariate statistics bringing together all variables plus dozens or hundreds of dummy variables. The results, statistically significant here and there, leave much room for interpretation and a nagging feeling that the analysis has managed to obfuscate rather than clarify relationships (see Epstein and King, 2002;Lipton, 2013;Allaire andDauphin, 2014a, b, 2015;Coffee and Palia, 2014;Strine Jr, 2014).…”

Section: Introductionmentioning

confidence: 99%

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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Shareholder Power and Corporate Innovation: Evidence from Hedge Fund Activism

Cited by 33 publications

References 4 publications

Thirty years of shareholder activism: A survey of empirical research

Thirty years of shareholder activism: A survey of empirical research

The Early Returns to International Hedge Fund Activism: 2000–2010

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

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