Shareholder Engagement and Activism Under the Radar: Empirical Evidence From Hong Kong (2003-15) — Rethinking Disclosure of Interests Regime

Abstract

Shareholder activism has been overlooked in Hong Kong (HK) — Asia’s global financial centre and the gateway for investors to access the China Mainland markets. The HK Disclosure of Interests regime provides insufficient information on activist investments to the public, as compared to The Schedule 13D of the Securities Exchange Act 1934 in the U.S., and similar regimes prevailing in Japan and Korea. A large number of shareholder activism practice — through the form of private engagements — have escaped from public surveillance. This Article provides the first empirical evidence of shareholder activism as a credible monitoring and disciplining force in HK. I study both foreign and local activist investments in public companies during 2003-15. In the HK market that is dominated by family and state controlled companies, whereas minority shareholders are not expected to have much influence, my findings show that the activists enhance company value both in the short- and long-run. Specifically, company value increases by 8% around activist investment disclosures, and increases by 14% one year following these disclosures. At least 35% of the target companies implemented strategic or financial adjustments within the year subsequent to activist investments. Further, those companies, which implemented adjustments subsequent to activist investments, have company value enhanced by 26% in one year. These novel findings contribute to the policy debate on the benefits of shareholder activism. This Article points to the need for a strengthened disclosure regime that requires the disclosure of substantial shareholders’ intention, demand, and proposals on public companies, which would provide relevant information to the market.

Keywords: Securities Regulation, Activist Investors, Hedge Fund Activism, Corporate Governance, Asia-Pacific

JEL Classification: G14, G18, G23, G34, K22