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Influences Of Hedge Fund Activism On The Medium Term Target Firm Value
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Book Synopsis Influences of Hedge Fund Activism on the Medium Term Target Firm Value by : Nick W.A. Stokman
Download or read book Influences of Hedge Fund Activism on the Medium Term Target Firm Value written by Nick W.A. Stokman and published by . This book was released on 2007 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this study, the 'new' phenomenon of hedge fund activism is examined by testing the effects of 188 hedge fund activism events from Europe and North America. For all events it was measured what the effects were after the initial investment and the first action by the hedge fund, with the goal to research if these effects resulted in a value increase on the target firm value. On a short term period surrounding the initial filing by an activist hedge fund, there were found significant abnormal returns in the range of 9,5% to 12,19%, in both Europe and North America.Also, on a 6-month window significant positive abnormal returns were found, indicating that the involvement of a hedge fund activist created value also on a longer term.Furthermore, in the 20 days surrounding the initial activism, results showed a statistically significant abnormal return of 5,59%. After 6 months, this effect decreased a little and was not significant anymore. This decrease was mainly due to the events in Europe, that were less successful and reported no significant effects on the medium term. In contrast, in North America, on the medium term there were found (though not significant) even larger positive abnormal returns.Overall, the investments of activist hedge funds lead to an increase in shareholder value for the targeted firms. Activist hedge funds can be described as value investors that try to increase shareholder value by certain actions. The presented evidence in this research indicates that they are often successful in this strategy and thus create an increase in firm value on both the short and medium term.
Download or read book Hedge Fund Activism written by Alon Brav and published by Now Publishers Inc. This book was released on 2010 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt: Hedge Fund Activism begins with a brief outline of the research literature and describes datasets on hedge fund activism.
Book Synopsis Hedge Fund Activism in Japan by : John Buchanan
Download or read book Hedge Fund Activism in Japan written by John Buchanan and published by Cambridge University Press. This book was released on 2012-05-24 with total page 389 pages. Available in PDF, EPUB and Kindle. Book excerpt: Hedge fund activism is an expression of shareholder primacy, an idea that has come to dominate discussion of corporate governance theory and practice worldwide over the past two decades. This book provides a thorough examination of public and often confrontational hedge fund activism in Japan in the period between 2001 and the full onset of the global financial crisis in 2008. In Japan this shareholder-centric conception of the company espoused by activist hedge funds clashed with the alternative Japanese conception of the company as an enduring organisation or a 'community'. By analysing this clash, the book derives a fresh view of the practices underpinning corporate governance in Japan and offers suggestions regarding the validity of the shareholder primacy ideas currently at the heart of US and UK beliefs about the purpose of the firm.
Book Synopsis The Impact of Hedge Fund Activism on Target Firm Performance, Executive Compensation and Executive Wealth by : Andrew Glen Carrothers
Download or read book The Impact of Hedge Fund Activism on Target Firm Performance, Executive Compensation and Executive Wealth written by Andrew Glen Carrothers and published by . This book was released on 2017 with total page 15 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the relationship between hedge fund activism and target firm performance, executive compensation, and executive wealth. It introduces a theoretical framework that describes the activism process as a sequence of discrete decisions. The methodology uses regression analysis on a matched sample based on firm size, industry, and market-to-book ratio. All regressions control for industry and year fixed effects. Schedule 13D Securities and Exchange Commission (SEC) filings are the source for the statistical sample of hedge fund target firms. I supplement that data with target firm financial, operating, and share price information from the CRSP-COMPUSTAT merged database. Activist hedge funds target undervalued or underperforming firms with high profitability and cash flows. They do not avoid firms with powerful CEOs. Leverage, executive compensation, pay for performance and CEO turnover increase at target firms after the arrival of the activist hedge fund. Target firm executives' wealth is more sensitive to changes in share price after hedge fund activism events suggesting that the executive team experiences changes to their compensation structure that provides incentive to take action to improve returns to shareholders. The top executives reap rewards for increasing firm value but not for increased risk taking.
Book Synopsis Institutional Investor Activism by : William Bratton
Download or read book Institutional Investor Activism written by William Bratton and published by OUP Oxford. This book was released on 2015-08-20 with total page 924 pages. Available in PDF, EPUB and Kindle. Book excerpt: The past two decades has witnessed unprecedented changes in the corporate governance landscape in Europe, the US and Asia. Across many countries, activist investors have pursued engagements with management of target companies. More recently, the role of the hostile activist shareholder has been taken up by a set of hedge funds. Hedge fund activism is characterized by mergers and corporate restructuring, replacement of management and board members, proxy voting, and lobbying of management. These investors target and research companies, take large positions in `their stock, criticize their business plans and governance practices, and confront their managers, demanding action enhancing shareholder value. This book analyses the impact of activists on the companies that they invest, the effects on shareholders and on activists funds themselves. Chapters examine such topic as investors' strategic approaches, the financial returns they produce, and the regulatory frameworks within which they operate. The chapters also provide historical context, both of activist investment and institutional shareholder passivity. The volume facilitates a comparison between the US and the EU, juxtaposing not only regulatory patterns but investment styles.
Book Synopsis Two Essays on Firm Value and Hedge Funds' Activism Impact by : Hongfeng Lou
Download or read book Two Essays on Firm Value and Hedge Funds' Activism Impact written by Hongfeng Lou and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the first essay, I study the relationship between a firm's employee satisfaction and the firm's stock return, using Glassdoor data. First, I find that human capital is a valuable firm asset. Stock portfolios of firms with high employee satisfaction earn positive risk-adjusted returns. Second, contrary to the finding of Green et al. 2019, I find that firms with declining employee satisfaction outperform firms with improving employee satisfaction. Third, I find that change of employee satisfaction is associated with future accounting profitability but not with stock idiosyncratic volatility after controlling firm characteristics. In the second essay, I study the hedge fund activism's impact on target firms and employees of target firms. Hedge fund activism has grown rapidly over the last thirty years. Prior literature shows that hedge fund activism improves target firms' value and operational performance. However, whether such improvement is beneficial to target firms in the long-term is under debate in academic circles. In this study, I study the impact of hedge fund activism through the eyes of the employees of target firms. I find that hedge fund activism has a negative impact on the business of target firms. I also find that hedge fund activism reduces employees' career opportunities within target firms. The reduction of career opportunities corroborates studies showing that target firms lose valuable human capital after hedge fund activism. Overall, my study is consistent with a strand of burgeoning literature showing that hedge fund activism delivers negative impact to target firms and their employees.
Book Synopsis Real Effects of Hedge Fund Activism by :
Download or read book Real Effects of Hedge Fund Activism written by and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Activist Vs. Passivist Hedge Funds by : Ivan Kühne
Download or read book Activist Vs. Passivist Hedge Funds written by Ivan Kühne and published by Haupt Verlag AG. This book was released on 2011 with total page 350 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays on Hedge Fund Activism by : Xianjue Wang
Download or read book Essays on Hedge Fund Activism written by Xianjue Wang and published by . This book was released on 2016 with total page 160 pages. Available in PDF, EPUB and Kindle. Book excerpt: The first essay focuses on detailed activities in hedge fund activism targets. We perform a textual analysis of 8-Ks filed by 693 firms targeted by hedge fund activists over the 2005 to 2012 period to document the comprehensive material changes that these firms undergo after being targeted. We benchmark the changes in the year after the 13D filing to those in the year prior to 13D filing, and then control for changes over the same period in propensity score matched firms. The difference-in-differences results suggest that targets of hedge fund activism that are not acquired experience significantly higher incidence of CEO appointments and director arrivals that are both associated with higher shareholder value. The evidence also suggests that some changes that activists request like repurchases, sale of assets and bylaw changes though more frequent are not associated with any value gains. The evidence complements prior work by showing that activists potentially create value through governance changes along with pressurizing the target to sell itself. The second essay investigates the role of institutional investors in hedge fund activism. Hedge funds activists do not usually hold a large stake in the target firm. Institutional owners by their support or lack thereof can have a significant impact on the success of the activist's campaign. We develop three measures of institutional ownership that is likely to be supportive of activism. Over the period 2004 to 2012 we find that high pre event activism friendly institutional ownership is associated with significantly higher short term and long term stock returns and operating performance of the target firm. Pre event ownership by activism friendly institutions also significantly increases the likelihood of being targeted by hedge fund activists. The paper is one of the first to document that composition of institutional ownership has a significant impact on the likelihood of and value created from hedge fund activism.
Book Synopsis The Real Effects of Hedge Fund Activism by : Alon Brav
Download or read book The Real Effects of Hedge Fund Activism written by Alon Brav and published by . This book was released on 2011 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the long-term effect of hedge fund activism on the productivity of target firms using plant-level information from the U.S. Census Bureau. A typical target firm improves its production efficiency within two years after activism, and this improvement is concentrated in industries with a high degree of product market competition. By following plants that were sold post-intervention we also find that efficient capital redeployment is an important channel via which activists create value. Furthermore, our analyses demonstrate that measuring performance using the Compustat data is likely to lead to a downward bias because target firms experiencing greater improvement post-intervention are also more likely to disappear from the Compustat database. Finally, consistent with recent work in asset-pricing linking firm investment decisions and expected returns, we show how changes to target firms' productivity are associated with a decline in systemic risk, particularly in competitive industries.
Book Synopsis Hedge Fund Activism and Financial Performance by : J.B. Heaton
Download or read book Hedge Fund Activism and Financial Performance written by J.B. Heaton and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Up to the late 1990s, there was little evidence that shareholder activism generated any economically meaningful improvements in share prices or the operating performance of corporations. By the early 2000s, however, a new form of shareholder activism began to emerge: shareholder activism by hedge funds. Hedge fund activism promised to be different and more effective than past efforts. As it turned out, however, the promise of hedge fund activism has been largely, though not entirely, unfulfilled. Hedge fund activists have influenced corporate managers to increase shareholder value, and in that sense they have succeeded where prior activists failed, doing more to compensate for a bridled market for corporate control than previous activism. But the success of hedge fund activists has been narrow; they seem to succeed only when they facilitate the sale of the target firm. The main focus of this chapter is to explore why hedge fund activism has been so limited in its successes. I conclude that there likely is no form of shareholder activism that will add real value for shareholders beyond facilitating the sale of the firm. The problem, in other words, is not with the nature of the activist. The problem is with the nature of corporations themselves and the limits of “outsideness.”
Book Synopsis Intra-Industry Effects of Shareholder Activism - Market Reactions to Hedge Fund and Private Equity Investments by : Mark Mietzner
Download or read book Intra-Industry Effects of Shareholder Activism - Market Reactions to Hedge Fund and Private Equity Investments written by Mark Mietzner and published by . This book was released on 2009 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the valuation effects of industry rivals to firms targeted by hedge funds and private equity investors. We argue that both types of investors differ from other blockholders due to their strong motivation and ability to actively engage and monitor. By changing a target firms' objective functions toward more of a shareholder value orientation, we find that the new institutional investors improve firm operating performance. We find that the announcement of a change in ownership structure generates statistically significant intra-industry effects for rivals to private equity and hedge fund targets. The intra-industry effects for our private equity rival portfolio are inversely related to industry concentration, and positively related to a change in profitability, the market-to-book ratio and trading volume. Considering the rivals to hedge fund targets, we identify only the market-to-book ratio as an explanatory factor. While the the long-lasting return drift to hedge fund rivals is consistent with short-term results, we find that private equity rivals suffer statistically significant losses after the announcement, which can be explained by the expected negative competitive effects.
Book Synopsis Corporate Governance and Hedge Fund Activism by : PhD Goodwin (Shane)
Download or read book Corporate Governance and Hedge Fund Activism written by PhD Goodwin (Shane) and published by . This book was released on 2016 with total page 288 pages. Available in PDF, EPUB and Kindle. Book excerpt: Over the past two decades, hedge fund activism has emerged as a new mechanism of corporate governance that brings about operational, financial and governance reforms to a corporation. Many prominent business executives and legal scholars are convinced that the entire American economy will suffer unless hedge fund activism with its perceived short-termism agenda is significantly restricted. Shareholder activists and their proponents claim they function as a disciplinary mechanism to monitor management and are instrumental in mitigating the agency conflict between managers and shareholders. I find statistically meaningful empirical evidence to reject the anecdotal conventional wisdom that hedge fund activism is detrimental to the long term interests of companies and their long term shareholders. Moreover, my findings suggest that hedge funds generate substantial long term value for target firms and its long term shareholders when they function as a shareholder advocate to monitor management through active board engagement to reduce agency cost.
Book Synopsis Extreme Value Hedging by : Ronald D. Orol
Download or read book Extreme Value Hedging written by Ronald D. Orol and published by Wiley. This book was released on 2008-01-18 with total page 288 pages. Available in PDF, EPUB and Kindle. Book excerpt: Activist hedge fund managers represent a small part of the $1.5 trillion hedge fund industry, but their approach is causing a stir among traditional managers and the investment community because they are shaking up the corporate establishment and making money for their investors. These types of managers are here to stay and Extreme Value Hedging tells the story of their rise to power in the U.S. and how they are spreading their influential gospel around the globe to places like China, Ukraine, South Korea and Sweden. Author Ronald D. Orol has a unique understanding of this world and through this book he shares his unparalleled insights in an easy to comprehend manner. He discusses everything from activist investor efforts to breakup the clubby insider world of corporate boardrooms to their deal-making or breaking pressure tactics and courtroom battles. Orol skillfully makes his case for each subject by offering revelations and examples from insiders like Ralph Whitworth, (Relational Investors), Guy Wyser-Pratte, (Wyser-Pratte Management), Mark Schwarz, (Newcastle Capital Group LLC), Robert Chapman (Chapman Capital), Phillip Goldstein (Opportunity Partners), Jeffrey Ubben (ValueAct Capital), Jeffrey M. Solomon (Ramius Capital Group LLC), Michael Van Biema (Van Biema Value Partners), Eric Rosenfeld (Crescendo Partners), Lars Förberg (Cevian Capital) and Emanuel Pearlman (Liberation Investment Group), among many, many others.
Book Synopsis Wealth Effects of Hedge Fund Activism by : Hadiye Aslan
Download or read book Wealth Effects of Hedge Fund Activism written by Hadiye Aslan and published by . This book was released on 2018 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: Do hedge funds add value to the companies they target or reap short-term benefits at the expense of others? This paper looks at the impact of shareholder activism on bondholders' wealth through the prism of bondholder-shareholder-manager conflicts as opposed to that of the activism literature, which exclusively focuses on the bilateral shareholder-manager conflicts. We use a comprehensive hand-collected database of activist SEC filings between January 1996 and March 2008. We run a battery of univariate and cross-sectional tests for the full sample and for different groups segmented by default risk, hedge fund activity, level and type of covenant protection, debt seniority and outcome of the activity. In the short-run, although we find some evidence that hedge funds transfer wealth from bondholders in the subsample of quot;investment-gradequot; bonds and quot;capital structure-relatedquot; activism, the expropriation is pronounced mostly for the quot;weakly protectedquot; bonds and activism targeting shorter-term quot;strategic types of corporate changesquot;. For the full sample and other subgroups we do not find that expropriation of wealth is a major source of stockholder gains. We show that the initial positive bond reaction is offset over extended time frames and that target bonds underperform their benchmarks starting one year after activist filing significantly by 3 percent to 5 percent per year for the full sample. Consistent with this finding, our results reveal that there is a greater incidence of downgrades than upgrades in the same time frame as return underperformance.
Book Synopsis Hedge Fund Activism, Corporate Governance and Corporate Law by : Dionysia Katelouzou
Download or read book Hedge Fund Activism, Corporate Governance and Corporate Law written by Dionysia Katelouzou and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates the brand of shareholder activism hedge funds deploy by reference to a unique hand-collected dataset of 11 years' activist hedge funds' campaigns across 25 countries. The analysis has two core elements, one of which is to chart the emergence of hedge fund activism outside the United States and the other being to account why hedge fund activism has developed differently across the sample countries. Both issues have been to date only tangentially explored. This study is the first one to seek to determine the extent to which corporate law is a determinant of the hedge fund activism phenomenon using a fresh approach which combines theoretical and comparative legal analysis with empirical methods. While a single variable is unlikely to account for the emergence of hedge fund activism, the study describes hedge fund activism as a game of three sequential stages as a heuristic device and identifies market and legal parameters for each stage. To test the hypotheses advanced for the emergence of hedge fund the study draws upon the law and finance literature. For instance, to account to what extent the rights bestowed on shareholders by corporate law influence hedge fund activism the study uses the CBR shareholder rights index. The results indicate that the extent to which law matters depends on the stage which activism has reached. The study also puts hedge fund activism in its corporate governance context. Activist hedge funds' interventions have been envisioned as a mechanism for ensuring effective control of managerial discretion. Opponents of hedge fund activism contend, however, that this new breed of activists has a dark side that raises various concerns. Activist hedge funds have been considered: as exacerbating short-termism; as being mainly aggressive to the incumbents; as bearing similarities to the 1980s-raiders; and as engaging in distorting equity decoupling techniques. The study presents new empirical data that shows that the perceived negative side-effects of hedge funds activism are greatly exaggerated: they are myths. Cumulatively, these findings question whether hedge fund activism warrants any type of legislative response so far as the goal of shareholder value maximization is succeeded.
Book Synopsis Essays on Hedge Fund Activism and Family Firm by : Pil-Seng Lee
Download or read book Essays on Hedge Fund Activism and Family Firm written by Pil-Seng Lee and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation has two essays covering hedge fund activism and family firm. In the first essay of my dissertation, I investigate how hedge fund activism reengineer corporate culture of targeted firms. By using culture measures based on the Q&A section of earnings conference calls, I find that target firms emphasize building organizational culture with better quality, more innovation, higher integrity, and growing respect after activism. However, teamwork culture does not change. I also find that these positive effects of activism on corporate culture are mainly driven by CEO turnover, especially if incumbent CEOs are replaced by outsiders, not insiders. New outside CEOs are recruited from firms with better culture and higher asset sales. Activist-appointed directors also influence corporate culture by promoting outside CEO turnover. Target firms with positive cultural change improve their firm performance. Additionally, employees of target firms perceive their firms’ culture as improved after activism. Overall, this study provides evidence of the importance of corporate culture as a source of gains from hedge fund activism. The second essay examines the extent to which founder-CEOs pay attention to stock market signals in making their investment decisions. We find that founder-CEOs, on average, place significantly less weight on market signals than professional CEOs, without compromising investment efficiency and firm performance. We employ decimalization as an exogenous shock to show that the market premium due to enhanced liquidity is lower for founder-CEO firms, consistent with founder-CEOs underweighting the incremental information provided by a more liquid market. Further, we find that the weaker learning behavior is more prominent if founder-CEOs possess more specialized skills and operate firms with higher R&D intensity and greater operating cash flow volatility. We argue that founder-CEOs’ superior skills and longer-term investment horizons drive this result. Price informativeness, CEO power, external monitoring, financing constraints, and overconfidence do not seem to drive our findings.
