Long-Term Effects of Hedge Fund Activism in Germany

Abstract

This paper analyses the short- and long-term effects of shareholder activism by hedge funds in German publicly listed companies. Using a hand-collected sample of investments between 1999 and 2010, I show that hedge funds are largely ineffective in substantially affecting the firms they invest in. With the exception of an increase in management turnover, benchmark-adjusted firm characteristics like dividend policy, cash holdings, capital structure, or operational performance show no unexpected changes in the years following an activist hedge fund's investment. I also show that initially positive market responses to hedge fund investments are followed by reversals in the following year, resulting in an overall effect that is indistinguishable from zero. The combined results suggest that few of the effects attributed to activist hedge funds in the US are observable in the German capital market.

Keywords: Hedge Fund, Activism, Ownership, Corporate Governance

JEL Classification: G14, G23, G32