U.S. Hedge Fund Activism

Abstract

Notwithstanding the focus on hedge fund activism, fundamental questions remain. How much does hedge fund activism really matter? What has academic study contributed to the understanding of hedge fund activism? And what, if anything, does research on hedge fund activism illuminate about the viability of regulation in the area?

This chapter for the Research Handbook on Shareholder Power (edited by Randall Thomas and Jennifer Hill) addresses these questions from three perspectives. First, it assesses the historical development of scholarship on hedge fund activism, from the first attempts to define “hedge funds” and “activists,” and to gather data about both. Second, it examines and critiques one of the “hot issues” that has emerged from the debate about hedge fund activism – the potential separation of voting and economic interests – and offers a new way of conceptualizing that issue, derived in part from tax regulation. Third, it compares regulatory approaches to hedge fund activism in the U.S. with approaches elsewhere. It closes with a discussion of one recent and controversial incident of hedge fund activism in Canada, involving shares of the Telus Corporation, and examines the role of academic research in assessing that incident.

Keywords: hedge funds, corporate governance, market efficiency, shareholder activism, hedge fund activism, shareholder rights, takeovers, proxy fights, shareholder voting, equity derivatives, empty voting, encumbered shares, Telus

JEL Classification: G12, G23, G32, G34, G35, G38, K22