Hedge Funds vs. Private Equity Funds as Shareholder Activists - Differences in Value Creation

49 Pages Posted: 20 Sep 2007

See all articles by Mark Mietzner

Mark Mietzner

Zeppelin University

Denis Schweizer

Concordia University

Date Written: November 2007

Abstract

This paper analyzes market reactions triggered by announcements that hedge funds and private equity investors purchase large blocks of voting rights. We argue that changes in share-holder's wealth are related to the opportunity, possibility and motivation of being an active blockholder, who successfully reduce agency problems. The investigation is based on a unique data set of German public listed companies and relates their short-term and long-term stock performance to several corporate and market variables. We find positive abnormal returns triggered by an announcement that an active shareholder acquired at least 5% of a company's voting rights. Interestingly, variables proxying for agency costs explain the market reaction for our private equity sample, only. Ownership characteristics provide only poor evidence for explaining the market reaction within our hedge fund sample; although they are important for the private equity sample. Considering the long-term market performance, we observe considerably negative benchmark adjusted buy-and-hold returns for both samples. However, our results indicate a misinterpretation by the capital market regarding a hedge fund's motivations and activities.

Keywords: Abnormal Returns, Corporate Governance, Hedge Fund, Private Equity, Shareholder Activism

JEL Classification: G14, G32, G34, G38

Suggested Citation

Mietzner, Mark and Schweizer, Denis, Hedge Funds vs. Private Equity Funds as Shareholder Activists - Differences in Value Creation (November 2007). Available at SSRN: https://ssrn.com/abstract=1015714 or http://dx.doi.org/10.2139/ssrn.1015714

Mark Mietzner (Contact Author)

Zeppelin University ( email )

Am Seemooser Horn 20
Friedrichshafen, Lake Constance 88045
Germany
+49 7541 6009-1232 (Phone)
+49 7541 6009-1299 (Fax)

HOME PAGE: http://www.zu.de

Denis Schweizer

Concordia University ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1M8
Canada
+1 (514) 848-2424 ext. 2926 (Phone)
+1 (514) 848-4500 (Fax)

HOME PAGE: http://www.concordia.ca/jmsb/faculty/denis-schweizer.html

Register to save articles to
your library

Register

Paper statistics

Downloads
1,184
Abstract Views
5,137
rank
16,581
PlumX Metrics