The Past, Present and Future of Shareholder Activism by Hedge Funds
Brian R. Cheffins
University of Cambridge - Faculty of Law; European Corporate Governance Institute (ECGI)
University of Oxford - Faculty of Law; University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)
August 31, 2011
Journal of Corporation Law, 2012
University of Cambridge Faculty of Law Research Paper No. 38/2011
The forthright brand of shareholder activism hedge funds deploy emerged by the mid-2000s as a major corporate governance phenomenon. This paper explains the rise of hedge fund activism and offers predictions about future developments. 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, “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 activism and draws upon the market for corporate influence heuristic to predict that activism by hedge funds is likely to remain an important element of corporate governance going forward.
This is a revised version of “The Rise and Fall (?) of Shareholder Activism by Hedge Funds”, available at: http://ssrn.com/abstract=1489336.
Number of Pages in PDF File: 93
Keywords: Shareholder, Shareholder activism, hedge funds, corporate law, corporation
JEL Classification: G34, G38, K22, N22
Date posted: September 24, 2011 ; Last revised: September 29, 2011