The Value of Activism: A Hedge Fund Investor's Perspective

Feng, Felix Zhiyu; Yin, Chengdong; Zhu, Caroline

doi:10.2139/ssrn.3158826

Cited by 2 publications

(1 citation statement)

References 25 publications

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“…This leads us to consider how outcomes are affected when activists can sometimes engage in stock-picking, profiting from trading on information that management is working to maximize shareholder value, in which case they need not incur costs of intervention. In practice, stock-picking represents a major source of activist profits (Feng, Yin, and Zhu (2020), Cremers, Giambona, Sepe, and Wang (2021)). We show that such stock-picking has positive spillover effects on disciplining management: Stock-picking based on good news raises the likelihood that negative net order flows do not contain activist trades, resulting in lower stock prices that make activism more profitable.…”

Section: Introductionmentioning

confidence: 99%

Blockholder Disclosure Thresholds and Hedge Fund Activism

Ordonez-Calafi

Bernhardt²

2022

J. Financ. Quant. Anal.

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Blockholder disclosure thresholds shape incentives for hedge fund activism, which are jointly determined with real investment and managerial behavior. Uninformed investors value lower thresholds (greater transparency) when the cost of trading against an informed activist outweighs the benefits of the activist's disciplining of management.Conversely, activists may desire disclosure thresholds if their threat of participation discourages managerial malfeasance, which is their source of profits. Hedge fund activism can be excessive: if market opacity sufficiently harms uninformed investors, the costs of reduced real investment outweigh the social benefits from managerial disciplining, and society benefits from lower thresholds.

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Section: Introductionmentioning

confidence: 99%