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Governance under the Gun: Spillover Effects of Hedge Fund Activism

60 Pages Posted: 19 Nov 2013 Last revised: 7 Dec 2017

Nickolay Gantchev

Southern Methodist University (SMU) - Finance Department

Oleg Gredil

Tulane University -- A.B. Freeman School of Business

Chotibhak Jotikasthira

Southern Methodist University (SMU) - Finance Department

Date Written: December 6, 2017

Abstract

Hedge fund activism is associated with improvements in the governance and performance of targeted firms. In this paper, we show that the positive effects of activism reach beyond the targets, as yet-to-be-targeted peers make similar improvements under the threat of activism. Peers with higher threat awareness, as measured by board 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. Time-varying industry conditions or product market effects do not explain our results.

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 (December 6, 2017). 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)

Oleg Gredil

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

7 McAlister Dr
New Orleans, LA 70118
United States

Chotibhak Jotikasthira

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

United States

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