Activism Pressure and the Market for Corporate Assets

Activism Pressure and the Market for Corporate Assets

Ulrich Hege, Yifei Zhang

Series number :

Serial Number: 
596/2019

Date posted :

March 01 2019

Last revised :

September 17 2019
SSRN Share

Keywords

  • Hedge Fund Activism • 
  • activism threat • 
  • divestitures • 
  • Mergers • 
  • acquisitions • 
  • small acquirers • 
  • real asset liquidity • 
  • price pressure • 
  • acquisition efficiency

We investigate the impact of hedge fund activism on corporate transaction markets. We find that activism targets as well as firms exposed to hedge fund threats receive more merger bids, increase divestitures and make fewer acquisitions, with the acquisition effect concentrated among large firms.

We document that the majority of activist campaigns are clustered by industry, and estimate that the simultaneous increase in asset sales and decrease in acquisitions in such activism clusters reduce real asset liquidity for asset sellers by about 35%. The liquidity squeeze produces two effects: transaction prices are reduced, and industry outsiders provide liquidity by purchasing more industry assets. Looking at short-term price pressure and long-run performance We present evidence that transactions by activist targets are less affected by the reduced asset liquidity than those of other firms.

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Authors

Real name:
Yifei Zhang