The Preventive Effect of Hedge Fund Activism

Zhu, Caroline

doi:10.2139/ssrn.2369533

Cited by 10 publications

(9 citation statements)

References 43 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Less than 1% of COMPUSTAT firms were targeted in a proxy fight annually over the past two decades. Even with such a low frequency, recently developed studies have shown that the threat of proxy fights, instead of materialized events, plays an important disciplinary role (Brav et al., ; Fos, ; Gantchev et al., ; Klein & Zur, ; Zhu, ). However, the threats analyzed by current studies are mostly limited to the ones that have already escalated to the stage of Schedule 13D filings, indicating activist initiation of a proxy solicitation.…”

Section: Resultsmentioning

confidence: 99%

“…Quite often, the theory of the firm attributes the survival of the corporate form to devices such as proxy fights that constrain the potential incentive problems created by the separation of ownership and control. Alchian and Demsetz (, p. 788) state that “the transfer of proxies enhances the probability of a decisive action in the event current stockholders or any outsider believe that management is not doing a good job with the corporation.” However, activists do not necessarily need to launch a proxy fight to achieve their goal of disciplining incumbent management and changing corporate policies (Brav, Jiang, Partnoy, & Thomas, ; Fos, ; Gantchev, Gredil, & Jotikasthira, ; Klein & Zur, ; Zhu, ). The report by J. P. Morgan (2015, p. 7) indicates that “in many cases activist investors can reap the benefits of a ‘win’ with far less than a formal proxy contest.”…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Not all threats are taken equally: Evidence from proxy fights

Chen

Flaherty

et al. 2019

The Financial Review

View full text Add to dashboard Cite

Previous research shows that activist threats lead to corporate policy concessions. We find that the threat of proxy fights is responded to differently based on its credibility. Decomposing proxy fight threats, we find that only credible threats are associated with more leveraged, more innovative, and less acquisitive corporate policies. Management, however, does not respond to noncredible threats. Further, for materialized fights, the market reaction at announcement is also conditional on the credibility of the threats. Overall, not all activist threats are responded to equally by management or the market, and only credible threats achieve disciplinary effects and favorable valuation.

show abstract

Section: Resultsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Not all threats are taken equally: Evidence from proxy fights

Chen

Flaherty

et al. 2019

The Financial Review

View full text Add to dashboard Cite

show abstract

“…Activists initiate changes by tearing down takeover defense, ousting CEOs, changing board structure, and challenging executive compensation plans. Recent empirical evidence shows that the impact of shareholder activism reaches beyond target firms, as industry peers make similar improvements and changes, generating significant financial, and real effects (see Aslan & Kumar, 2016; Bourveau & Schoenfeld, 2017; Feng et al, 2018; Gantchev et al, 2019; Zhu, 2013).…”

Section: Introductionmentioning

confidence: 99%

“…The first is the product market channel: Activism generates negative effects on rival firms through product market competition (Aslan & Kumar, 2016). The second is the threat channel: The possibility of activism disciplines managers and improves performance at nontarget firms (Bourveau & Schoenfeld, 2017; Gantchev et al, 2019; Lee & Park, 2009; Zhu, 2013). This paper identifies the competition in the factor market for CEO talents as a novel channel of spillovers.…”

Section: Introductionmentioning

confidence: 99%

The factor market spillover effects of shareholder activism

Zhan

2021

J of Financial Research

View full text Add to dashboard Cite

Firms and CEOs are linked in the factor market because CEO talents are transferable across different firms. Shareholder activism increases the nontarget firm's outside option and reduces the nontarget CEO's outside option. This leads to higher profit and lower CEO compensation at the nontarget firm. Due to this positive spillover, the activist's intervention is inefficiently low. As CEO talents become more transferable, monitoring, and performance improve more and CEO compensation decreases more at the nontarget firm; shareholder activism becomes less efficient due to the increased linkage between CEOs. This paper also provides a number of novel empirical predictions.

show abstract

“…Karpoff (2001) illustrated the discrepancies among 20 empirical studies on the effects of shareholder activism. Xu and Li (2011) 1994-2008 505 3686 2626 Zhu (2013) 1994-2007 330 1264 988 Clifford (2008Clifford ( ) 1998Clifford ( -2005 788 N/A Boyson and Mooradian (2011) 1994-2005 418 397 Greenwood and Schor (2009) 1994-2006 784 N/A Gantchev (2013) 2000-2007 171 1164 1023 Bebchuk et al (2013Bebchuk et al ( , 2015 1994-2007 N/A 2040 N/A Goodwin (2015) 1990-2014 N/A N/A 3202 He pointed out differences in time periods, sample sizes, types of events examined and definitions of success in shareholder activism (he found six different definitions of success). 3.…”

Section: Introductionmentioning

confidence: 99%

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

Allaire

Dauphin

2015

SSRN Journal

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

The Preventive Effect of Hedge Fund Activism

Cited by 10 publications

References 43 publications

Not all threats are taken equally: Evidence from proxy fights

Not all threats are taken equally: Evidence from proxy fights

The factor market spillover effects of shareholder activism

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

Contact Info

Product

Resources

About