Abstract

http://ssrn.com/abstract=2139482
 


 



Institutional Trading and Hedge Fund Activism


Nickolay Gantchev


University of North Carolina Kenan-Flagler Business School

Chotibhak Jotikasthira


University of North Carolina Kenan-Flagler Business School

November 3, 2015


Abstract:     
This paper investigates the role of institutional trading in the emergence of hedge fund activism – an important corporate governance mechanism. Institutional selling appears to raise a firm’s probability of becoming an activist target. Institutions may signal to activists that a firm needs an intervention (signaling) or provide camouflage for the activists’ block formation (liquidity). We find support for the latter. Institutional selling does not attract attention to unlikely targets but rather accelerates targeting at firms already followed by activists. Furthermore, consistent with the camouflage mechanism, activist purchases closely track institutional sales at the daily frequency, and such synchronicity is stronger among targets with lower expected monitoring benefits, suggesting that trading gains supplement these benefits in the activist’s targeting decision. Our results offer a novel empirical perspective on activist targeting; while activists screen firms on the basis of fundamentals, they pick specific targets at a particular time by exploiting institutional liquidity sales.

Number of Pages in PDF File: 69

Keywords: Shareholder activism, Corporate governance, Hedge funds, Institutional investors

JEL Classification: G11, G12, G23, G34


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Date posted: September 1, 2012 ; Last revised: November 4, 2015

Suggested Citation

Gantchev, Nickolay and Jotikasthira, Chotibhak, Institutional Trading and Hedge Fund Activism (November 3, 2015). Available at SSRN: http://ssrn.com/abstract=2139482 or http://dx.doi.org/10.2139/ssrn.2139482

Contact Information

Nickolay Gantchev (Contact Author)
University of North Carolina Kenan-Flagler Business School ( email )
Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
919-962-4926 (Phone)
919-962-2068 (Fax)
HOME PAGE: http://sites.google.com/site/nickolaygantchev/

Chotibhak Jotikasthira
University of North Carolina Kenan-Flagler Business School ( email )
Chapel Hill, NC 27599-3490
United States

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