Governance under the Gun: Spillover Effects of Hedge Fund Activism

Governance under the Gun: Spillover Effects of Hedge Fund Activism

Nickolay Gantchev, Oleg Gredil, Chotibhak Jotikasthira

Series number :

Serial Number: 
562/2018

Date posted :

May 22 2018

Last revised :

November 25 2018
SSRN Share

Keywords

  • shareholder activism • 
  • Corporate governance • 
  • Hedge Funds • 
  • institutional investors

Hedge fund activism is associated with improvements in the governance and performance of targeted firms. In this paper, we show that these positive effects of activism reach beyond the targets, as non-targeted peers make similar improvements under the threat of activism.

Peers with higher threat perception, as measured by director connections to past targets, are more likely to increase leverage and payout, decrease capital expenditures and cash, and improve return on assets and asset turnover. As a result, their valuations improve, and their probability of being targeted declines. Our results are not explained by time-varying industry conditions or competition effects whereby improved targets force their product market rivals to become more competitive.

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Authors

Professor
Real name:
Oleg Gredil
Tulane University
Professor
Real name:
Chotibhak Jotikasthira
Southern Methodist University