Abstract

http://ssrn.com/abstract=2139482
 
 

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Hedge Fund Activists: Do They Take Cues from Institutional Exit?


Nickolay Gantchev


University of North Carolina Kenan-Flagler Business School

Chotibhak Jotikasthira


University of North Carolina Kenan-Flagler Business School

February 12, 2013


Abstract:     
Hedge fund activists achieve substantial improvements in the performance and governance of target firms. These activists accumulate most of their large ownership in the days immediately before their campaigns while other institutions heavily sell the targets. We show that institutional exit triggers the emergence of activism. At the daily frequency, we identify a causal relationship between institutional selling and activist purchases. We use each institution’s trading in non-target stocks as an instrument for its trading in the target. Our instrument is based on the observation that institution-specific funding needs, rather than target-specific information, explain most of the selling. Institutional sellers demand liquidity, allowing hedge funds to rapidly acquire shares with limited price impact and ultimately initiate a campaign at a lower cost. We formally show that sustained institutional selling significantly raises the odds of activist interventions, and hence plays an important corporate governance role.

Number of Pages in PDF File: 47

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: September 12, 2013

Suggested Citation

Gantchev, Nickolay and Jotikasthira, Chotibhak, Hedge Fund Activists: Do They Take Cues from Institutional Exit? (February 12, 2013). 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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