Debtholder Responses to Shareholder Activism: Evidence from Hedge Fund Interventions
Review of Financial Studies (2014) 27(11): 3318-3342
42 Pages Posted: 11 Jan 2011 Last revised: 22 Apr 2015
Date Written: July 1, 2014
We investigate the effect of shareholder activism on debtholders by examining a sample of bank loans for firms targeted by activist hedge funds. We compare loan spreads before and after intervention and show the effects of heterogeneous shareholder actions. Spreads increase when shareholder activism relies on the market for corporate control or financial restructuring. In contrast, spreads decrease when activists address managerial entrenchment. Furthermore, the effects are more pronounced when pre-existing governance mechanisms are weak. Our findings suggest that shareholder activism does not necessarily exacerbate bondholder-shareholder conflicts of interest and highlight the role of activism in aligning investors.
Keywords: Shareholder activism, hedge funds, debtholders
JEL Classification: G14, G32, G34
Suggested Citation: Suggested Citation