Myths and Realities of Hedge Fund Activism: Some Empirical Evidence
King's College London – The Dickson Poon School of Law; A Dickson Poon Transnational Law Institute
April 20, 2013
7 Virginia Law & Business Review 459 (2013)
The brand of shareholder activism associated with hedge funds is a highly topical, yet equally controversial issue. In this article, I provide a synthesis of the key issues surrounding the hedge fund activism phenomenon, many of which are unresolved or have become popularized notions. I focus on activist hedge fund campaigns outside the Unites States, about which little is still known. The empirical core of the study comprises a hand-collected dataset from press reports which contains 432 activist campaigns launched by 129 unique activist hedge funds across 17 countries between January 1, 2000 and December 31, 2010.
This article casts doubt upon four aspects of the perceived dark side of hedge fund activism. Activist hedge funds are not short-term in focus, as some critics have claimed. Activist hedge funds do not often use equity decoupling techniques. They seldom seek control and despite all the press and attention lavished on hedge fund activism and its supposed evils in most cases are not mainly hostile to incumbent management.
For policymakers, this study presents fresh and compelling evidence on the nature of activist hedge funds, which raise questions as to whether hedge fund activism warrants any type of legislative response insofar the goal of regulation is to maximize shareholder value. The issues of short-termism and equity decoupling are not peculiar to activist hedge funds, and regulatory reforms towards stricter disclosure rules are unlikely to affect a hedge fund’s incentive to be an activist or its regulated status. And, given that activist hedge funds are not often aggressive and do not often seek control of their targets, they do not undermine the role of the board of directors as the central decision-making body, and do not thwart shareholder empowerment proposals.
Number of Pages in PDF File: 37
Keywords: shareholder activism, hedge funds, corporate governance, empirical study
JEL Classification: G34, G38, K22, N24, N25, N25
Date posted: September 27, 2012 ; Last revised: December 3, 2013