Worldwide Hedge Fund Activism: Dimensions and Legal Determinants

University of Pennsylvania Journal of Business Law, Forthcoming

King's College London Law School Research Paper No. 2014-8

68 Pages Posted: 23 Nov 2013 Last revised: 2 Jun 2015

Dionysia Katelouzou

King's College London – The Dickson Poon School of Law; A Dickson Poon Transnational Law Institute

Date Written: May 30, 2015

Abstract

In recent years, activist hedge funds have spread from the United States to other countries in Europe and Asia, but not as a duplicate of the American practice. Rather, there is a considerable diversity in the incidence and the nature of activist hedge fund campaigns around the world. What remains unclear, however, is what dictates how commonplace and multifaceted hedge fund activism will be in a particular country. The Article addresses this issue by pioneering a new approach to understanding the underpinnings and the role of hedge fund activism, in which an activist hedge fund first selects a target company that presents high-value opportunities for engagement (entry stage), accumulates a nontrivial stake (trading stage), then determines and employs its activist strategy (disciplining stage), and finally exits (exit stage). The Article then identifies legal parameters for each activist stage and empirically examines why the incidence, objectives and strategies of activist hedge fund campaigns differ across countries. The analysis is based on 432 activist hedge fund campaigns during the period of 2000-2010 across 25 countries. The findings suggest that the extent to which legal parameters matter depends on the stage that hedge fund activism has reached. Mandatory disclosure and rights bestowed on shareholders by corporate law are found to dictate how commonplace hedge fund activism will be in a particular country (entry stage). Moreover, the examination of the activist ownership stakes reveals that ownership disclosure rules have important ramifications for the trading stage of an activist campaign. At the disciplining stage, however, there is little support that the activist objectives and the employed strategies are a reflection of the shareholder protection regime of the country in which the target company is located.

Keywords: corporate governance, hedge funds, activism, comparative corporate law, empirical study, law and finance

JEL Classification: K22, G30

Suggested Citation

Katelouzou, Dionysia, Worldwide Hedge Fund Activism: Dimensions and Legal Determinants (May 30, 2015). University of Pennsylvania Journal of Business Law, Forthcoming; King's College London Law School Research Paper No. 2014-8. Available at SSRN: https://ssrn.com/abstract=2357547 or http://dx.doi.org/10.2139/ssrn.2357547

Dionysia Katelouzou (Contact Author)

King's College London – The Dickson Poon School of Law ( email )

Somerset House East Wing
Strand
London, WC2R 2LS
United Kingdom

A Dickson Poon Transnational Law Institute ( email )

London, England WC2R 2LS
United Kingdom

Paper statistics

Downloads
560
Rank
38,573
Abstract Views
2,337