Corporate Governance and Hedge Fund Activism

288 Pages Posted: 19 Aug 2015 Last revised: 26 Jun 2016

See all articles by Shane Goodwin, PhD

Shane Goodwin, PhD

Harvard Business School; Columbia Law School; Columbia Business School

Date Written: September 2015

Abstract

Over the past two decades, hedge fund activism has emerged as a new mechanism of corporate governance 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. I 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, my 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 to reduce agency cost.

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

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

Suggested Citation

Goodwin, Shane, Corporate Governance and Hedge Fund Activism (September 2015). Available at SSRN: https://ssrn.com/abstract=2646293 or http://dx.doi.org/10.2139/ssrn.2646293

Shane Goodwin (Contact Author)

Harvard Business School ( email )

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

Columbia Law School ( email )

435 West 116th Street
New York, NY 10009

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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