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The Second Wave of Hedge Fund Activism: The Importance of Reputation, Clout, and Expertise.

59 Pages Posted: 6 Apr 2015 Last revised: 15 Sep 2016

C. N. V. Krishnan

Case Western Reserve University - Department of Banking & Finance

Frank Partnoy

University of San Diego School of Law

Randall S. Thomas

Vanderbilt University - Law School; European Corporate Governance Institute (ECGI)

Date Written: July 25, 2016

Abstract

Using a large dataset of hand-collected information on activist interventions from 2008 to 2014, we examine why certain hedge funds succeed in the face of competition. We document that the top hedge funds succeed, not merely because of how they select targets, but because they acquire a reputation for what we label “clout and expertise.” These hedge funds do not intervene more frequently; to the contrary, activists with more interventions are associated with lower returns. Instead, top activists have a demonstrated ability to succeed in difficult interventions by targeting large firms, launching successful proxy fights, filing and winning lawsuits, pressuring target boards through the media, overcoming anti-takeover defenses, and replacing board members. These activists’ successes appear to result more from board representation, improved performance, and monitoring management than from capital structure or dividend policy changes.

Keywords: Hedge funds, Shareholder Activism, Hedge fund reputation, Hedge fund investments, Proxy fights, Lawsuits, Post-intervention performance, Selection bias control, Hedge fund Capital under management, Hedge fund number of Portfolio Companies, Hedge fund Board Seats, Anti-takeover Provisions

JEL Classification: G23, G34

Suggested Citation

Krishnan, C. N. V. and Partnoy, Frank and Thomas, Randall S., The Second Wave of Hedge Fund Activism: The Importance of Reputation, Clout, and Expertise. (July 25, 2016). Vanderbilt Law and Economics Research Paper No. 15-9; Journal of Corporate Finance, Vol. 40, No. 296-314, 2016. Available at SSRN: https://ssrn.com/abstract=2589992 or http://dx.doi.org/10.2139/ssrn.2589992

C. N. V. Krishnan (Contact Author)

Case Western Reserve University - Department of Banking & Finance ( email )

10900 Euclid Ave.
PBL 363
Cleveland, OH 44106-7235
United States
216-368-2116 (Phone)

HOME PAGE: http://weatherhead.case.edu/faculty/c-n-v-krishnan

Frank Partnoy

University of San Diego School of Law ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States
619-260-2352 (Phone)
619-260-4180 (Fax)

Randall S. Thomas

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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