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Hedge Fund Activism

50 Pages Posted: 31 Oct 2008  

April Klein

New York University (NYU) - Department of Accounting

Emanuel Zur

University of Maryland - Robert H. Smith School of Business

Date Written: October 2006

Abstract

This paper examines the causes and consequences of hedge fund activism. Hedge funds target profitable and healthy firms, with above-average cash holdings. The target firms earn significantly higher abnormal stock returns around the initial 13D filing date than a sample of control firm. However, they do not show improvements in accounting performances in the year after the initial purchase. Instead, hedge funds extract cash from the firm through increases in the target s debt capacity and higher dividends. Examination of proxy fights and threats accompanying the activist campaign suggests that hedge fund managers achieve their goals by posing a credible threat of engaging the target in a costly proxy solicitation contest.

Suggested Citation

Klein, April and Zur, Emanuel, Hedge Fund Activism (October 2006). NYU Working Paper No. CLB-06-017. Available at SSRN: https://ssrn.com/abstract=1291605

April Klein (Contact Author)

New York University (NYU) - Department of Accounting ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012
United States

Emanuel Zur

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

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