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Myopic Investor Myth Debunked: The Long-Term Efficacy of Shareholder Advocacy in the Boardroom

55 Pages Posted: 25 Jun 2014 Last revised: 16 Sep 2014

Shane C. Goodwin

Harvard Business School

Date Written: June 13, 2014

Abstract

Over the past two decades, hedge fund activism has emerged as new form of corporate governance mechanism that brings about operational, financial and governance reforms to a corporation. Many prominent business executives and legal scholars are convinced that the entire American economy will suffer unless hedge fund activism with its perceived short-termism agenda is significantly restricted. Shareholder activists and their proponents claim they function as a disciplinary mechanism to monitor management and are instrumental in mitigating the agency conflict between managers and shareholders. We find statistically meaningful empirical evidence to reject the anecdotal conventional wisdom that hedge fund activism is detrimental to the long term interests of companies and their long term shareholders. Moreover, our findings suggest that hedge funds generate substantial long term value for target firms and its long term shareholders when they function as a shareholder advocate to monitor management through active board engagement.

Keywords: Corporate governance, shareholder activism, hedge fund activism, proxy fights, short-termism, market efficiency, long-term value, shareholder rights, hedge funds

JEL Classification: D21, D22, D81, D82, G12, G23, G32, G34, G35, G38, K22

Suggested Citation

Goodwin, Shane C., Myopic Investor Myth Debunked: The Long-Term Efficacy of Shareholder Advocacy in the Boardroom (June 13, 2014). Available at SSRN: https://ssrn.com/abstract=2450214 or http://dx.doi.org/10.2139/ssrn.2450214

Shane C. Goodwin (Contact Author)

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
917-405-8430 (Phone)

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