The Rise and Fall (?) of Shareholder Activism by Hedge Funds

43 Pages Posted: 2 Aug 2010  

John Armour

University of Oxford - Faculty of Law; University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

Brian R. Cheffins

University of Cambridge - Faculty of Law; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2009

Abstract

Shareholder activism by hedge funds has over the past few years become a major corporate governance phenomenon. This paper puts the trend into context. The paper begins by distinguishing the “offensive” form of activism hedge funds engage in from “defensive” interventions “mainstream” institutional investors (e.g. pension funds or mutual funds) undertake. Variables influencing the prevalence of offensive shareholder activism are then identified using a heuristic device we call “the market for corporate influence”. The rise of hedge funds as practitioners of offensive shareholder activism is traced by reference to the “supply” and “demand” sides of this market, with the basic chronology being that, while there were direct antecedents of hedge fund activists as far back as the 1980s, hedge funds did not move to the activism forefront until the 2000s. The paper brings matters up-to-date by discussing the impact of the recent financial crisis on hedge fund-driven shareholder activism and draws upon the market for corporate influence heuristic to predict future trends.

Keywords: Shareholder activism, hedge funds, financial crisis

JEL Classification: G34, G38, K22, N22

Suggested Citation

Armour, John and Cheffins, Brian R., The Rise and Fall (?) of Shareholder Activism by Hedge Funds (September 1, 2009). ECGI - Law Working Paper No. 136/2009. Available at SSRN: https://ssrn.com/abstract=1489336 or http://dx.doi.org/10.2139/ssrn.1489336

John Armour

University of Oxford - Faculty of Law ( email )

Oriel College
Oxford, OX1 4EW
United Kingdom
+44 1865 286544 (Phone)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Brian R. Cheffins (Contact Author)

University of Cambridge - Faculty of Law ( email )

10 West Road
Cambridge, CB3 9DZ
United Kingdom
+44 1223 330084 (Phone)
+44 1223 330055 (Fax)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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