Governance under the Gun: Spillover Effects of Hedge Fund Activism

66 Pages Posted: 19 Nov 2013 Last revised: 2 Nov 2018

See all articles by Nickolay Gantchev

Nickolay Gantchev

Southern Methodist University (SMU) - Finance Department; European Corporate Governance Institute (ECGI)

Oleg Gredil

Tulane University - A.B. Freeman School of Business

Chotibhak Jotikasthira

Southern Methodist University (SMU) - Finance Department

Date Written: November 1, 2018

Abstract

Hedge fund activism is associated with improvements in the governance and performance of targeted firms. In this paper, we show that these positive effects of activism reach beyond the targets, as non-targeted peers make similar improvements under the threat of activism. Peers with higher threat perception, as measured by director connections to past targets, are more likely to increase leverage and payout, decrease capital expenditures and cash, and improve return on assets and asset turnover. As a result, their valuations improve, and their probability of being targeted declines. Our results are not explained by time-varying industry conditions or competition effects whereby improved targets force their product market rivals to become more competitive.

Keywords: Shareholder activism, Corporate governance, Hedge funds, Institutional investors

JEL Classification: G12, G23, G32, G34

Suggested Citation

Gantchev, Nickolay and Gredil, Oleg and Jotikasthira, Chotibhak, Governance under the Gun: Spillover Effects of Hedge Fund Activism (November 1, 2018). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 562/2018. Available at SSRN: https://ssrn.com/abstract=2356544 or http://dx.doi.org/10.2139/ssrn.2356544

Nickolay Gantchev (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States
214-768-4128 (Phone)

European Corporate Governance Institute (ECGI) ( email )

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

Oleg Gredil

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Chotibhak Jotikasthira

Southern Methodist University (SMU) - Finance Department ( email )

United States

Register to save articles to
your library

Register

Paper statistics

Downloads
1,267
rank
13,969
Abstract Views
6,651
PlumX