Value Creation or Destruction? Hedge Funds as Shareholder Activists

Clifford, Christopher P.

doi:10.2139/ssrn.971018

Cited by 70 publications

(62 citation statements)

References 28 publications

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“…Klein and Zur (2006) use a sample of 194 Schedule 13D filings by hedge fund activists from 2003 to 2005, although they omit activism below the 5% threshold and most of the nonconfrontational hedge fund activism, where hedge fund managers work collaboratively with portfolio firm management. Clifford (2007) collects a sample of 1,902 firm‐fund observations over the period 1998 to 2005, but only examines stock price reaction and changes in operating performance without analyzing the pattern of targeting, company response, and outcome of the interventions. Both papers find that hedge fund activism generates significantly higher abnormal stock returns than a control sample of passive block holders, indicating the value of intervention.…”

Section: Institutional Background and Literature Reviewmentioning

confidence: 99%

Hedge Fund Activism, Corporate Governance, and Firm Performance

Brav¹,

Jiang²,

Partnoy³

et al. 2008

The Journal of Finance

1,273

138

1,224

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Using a large hand-collected data set from 2001 to 2006, we find that activist hedge funds in the United States propose strategic, operational, and financial remedies and attain success or partial success in two-thirds of the cases. Hedge funds seldom seek control and in most cases are nonconfrontational. The abnormal return around the announcement of activism is approximately 7%, with no reversal during the subsequent year. Target firms experience increases in payout, operating performance, and higher CEO turnover after activism. Our analysis provides important new evidence on the mechanisms and effects of informed shareholder monitoring.ALTHOUGH HEDGE FUND ACTIVISM IS WIDELY discussed and fundamentally important, it remains poorly understood. Much of the commentary on hedge fund activism is based on supposition or anecdotal evidence. Critics and regulators question whether hedge fund activism benefits shareholders, while numerous commentators claim that hedge fund activists destroy value by distracting managers from long-term projects. However, there is a dearth of large-sample evidence about hedge fund activism, and existing samples are plagued by various biases. * We thank the Acting Editor who handled our submission. Brav is with Duke University, Jiang is with Columbia University, Partnoy is with University of San Diego, and Thomas is with Vanderbilt University. The authors have benefited from discussions with Patrick Bolton, Bill Bratton, Martijn Cremers, Gregory Dyra, Alex Edmans, Allen Ferrell, Gur Huberman, Joe Mason, Edward Rock, Mark Roe, Roberta Romano, Tano Santos, William Spitz, Robert Thompson, and Gregory van Inwegen and comments from seminar and conference participants at the American Law and Economics Association, Arizona State University, Association of American Law Schools, BNP Paribas Hedge Fund Centre Symposium, Chicago Quantitative Alliance, Columbia University, The Conference Board, Drexel University, Duke University, FDIC, University of Florida, Goldman Sachs Asset Management, Hong Kong University of Science and Technology, Interdisciplinary Center (Herzlyia, Israel), Inquire (UK), University of Kansas, London Business School, Nanyang Technological University, National University of Singapore, Singapore Management University, Society of Quantitative Analysts, University of Amsterdam, U.S. Securities and Exchange Commission, University of Texas at Austin, University of Virginia, University of Washington, Washington University in St. Louis, Wharton, the European Financial Management Association annual meeting in Vienna, and the Vanderbilt Investor Activism Conference. We owe special thanks to a large number of research assistants for their help in data collection and, in particular, to Jennifer Blessing, Amod Gautam, Greg Klochkoff, and Samantha Prouty. We also thank George Murillo for excellent research assistance. Brav and Jiang acknowledge the financial support from the FDIC, the Q-Group, and the Yale/Oxford Shareholders and Corporate Governance Research Agenda. Jiang is also th...

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Section: Institutional Background and Literature Reviewmentioning

confidence: 99%

Hedge Fund Activism, Corporate Governance, and Firm Performance

Brav¹,

Jiang²,

Partnoy³

et al. 2008

The Journal of Finance

1,273

138

1,224

View full text Add to dashboard Cite

show abstract

“…First, this research fits well into the growing literature on hedge‐fund activism. Clifford (), Brav et al (), and Klein and Zur () document a positive and significant market reaction for hedge‐fund activism target firms around the initial Schedule 13D filing date as well as positive and significant returns over the subsequent year. These studies explain the documented positive return patterns to hedge‐fund activism through improved performance following the activist's intervention.…”

Section: Related Literaturementioning

confidence: 99%

Price Pressure of Trading and Equity Prices in Hedge Fund Activism

Mihov

2020

J of Financial Research

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In this article, I offer and examine a price pressure hypothesis, which states that stock prices of activism targets temporarily deviate from fundamentals. Increased demand for target stocks upon the formation of activist positions exerts upward pressure on targets’ stock prices in the short term. Such effects are driven by illiquid stocks whose prices are sensitive to order‐flow imbalances. When activists use private transactions, price pressure effects are muted. As buying pressure subsides and reverses over the long run, targets’ stock prices decline proportionately to predisclosure accumulations, driven again by illiquid stocks. These price dynamics have important implications for activists’ block‐formation strategies and, more generally, shareholder activism.

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“…The dependent variables are Active BH (Num) or (%) and Passive BH (Num) or (%). Following Clifford () and Clifford and Lindsey (), blockholders are active versus passive based on whether they file Schedule 13D and Schedule 13G, respectively. Board independence, leverage, dividend ratio, and firm size are the regressors in the model representing the fundamental firm policies and characteristics.…”

Section: Robustness and Further Analysesmentioning

confidence: 99%

Why do large shareholders adopt a short‐term versus a long‐term investment horizon in different firms?

Tosun

2019

The Financial Review

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I ask why the same large shareholders have different investment horizons. Using data for 1998–2013, I examine four fundamental firm policies for their potential influence on blockholders’ investments with different time horizons. The panel ordinary least squares, difference‐in‐difference (using the Sarbanes‐Oxley Act), logistic, and dynamic generalized method of moments regression analyses reveal that blockholders adopt a short‐term horizon in smaller firms with a less independent board, high leverage, and high dividends while the same blockholders keep their investments longer in firms with a more independent board and low dividends. Under various economic conditions, different firm characteristics gain importance in blockholders’ decision on short‐term versus long‐term investments.

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Value Creation or Destruction? Hedge Funds as Shareholder Activists

Cited by 70 publications

References 28 publications

Hedge Fund Activism, Corporate Governance, and Firm Performance

Hedge Fund Activism, Corporate Governance, and Firm Performance

Price Pressure of Trading and Equity Prices in Hedge Fund Activism

Why do large shareholders adopt a short‐term versus a long‐term investment horizon in different firms?

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