What is Special About Hedge Fund Activism? Evidence from 13-D Filings

Abstract

We provide an empirical assessment of two incentivizing mechanisms that help overcome agency costs caused by the separation of ownership and control: namely inside ownership and external blockholdings. Our findings suggest that defining features of these mechanisms, like high ownership and costly (active) effort provision, are important determinants for a successful outcome. On the other hand, the type of activist seems to be of minor importance only. We find that announcements of activist hedge fund holdings are not accompanied with larger abnormal returns than our base-group of activist investors. The only group standing apart with a smaller effect are financial institutions. Our sample covers all Schedule 13D filings from 1985-2012. Incidences of active blockholders are very frequent with over 10000 filings per year (1900 initial filings). Additionally, these events are associated with substantial abnormal returns, 7% for initial lings (4% for all filings).

Keywords: investor activism, activist blockholders, hedge funds, stock ownership