Abstract

http://ssrn.com/abstract=2139482
 


 



Institutional Trading and Hedge Fund Activism


Nickolay Gantchev


University of North Carolina Kenan-Flagler Business School

Chotibhak Jotikasthira


Southern Methodist University (SMU) - Edwin L. Cox School of Business; University of North Carolina Kenan-Flagler Business School

April 4, 2016


Abstract:     
This paper investigates the role of institutional trading in the emergence of hedge fund activism – an important corporate governance mechanism. We demonstrate that institutional sales raise a firm’s probability of becoming an activist target, and by exploiting the funding circumstances of individual institutions, we establish that such effects occur through a liquidity channel. We also provide additional evidence, highlighting the activist’s attempt to camouflage his purchases among other institutions’ liquidity sales. First, activist purchases closely track institutional sales at the daily frequency. Second, such synchronicity is stronger among targets with lower expected monitoring benefits, suggesting that gains from trading with other institutions supplement these benefits in the activist’s targeting decision. Finally, we find that institutional sales accelerate the timing of a campaign at firms already followed by activists rather than attract attention to unlikely targets. Taken together, our findings offer a novel empirical perspective on the liquidity theories of activism; while activists screen firms on the basis of fundamentals, they pick specific targets at a particular time by exploiting institutional liquidity shocks.

Number of Pages in PDF File: 59

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: April 26, 2016

Suggested Citation

Gantchev, Nickolay and Jotikasthira, Chotibhak, Institutional Trading and Hedge Fund Activism (April 4, 2016). 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
Southern Methodist University (SMU) - Edwin L. Cox School of Business ( email )
P.O. Box 750333
Dallas, TX 75275-0333
United States
University of North Carolina Kenan-Flagler Business School ( email )
Chapel Hill, NC 27599-3490
United States
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