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Activist Hedge Funds and Firm Disclosure

42 Pages Posted: 30 Sep 2015 Last revised: 25 Jul 2017

Jing Chen

University at Buffalo, SUNY

Michael J. Jung

New York University - Leonard N. Stern School of Business

Date Written: September 28, 2015

Abstract

This study examines whether firms’ disclosure decisions are affected by the presence of activist hedge funds. Using a large sample of firms that experienced increases in ownership by activist hedge funds, we find that firms are more likely to cease providing financial guidance or reduce the information in the guidance in the quarter subsequent to new investment by activist hedge funds. These results hold even for firms that experienced good quarters and consistently provided guidance in previous quarters. Since guidance has been shown to be beneficial to capital market participants in many ways, reduced guidance has meaningful market implications. Our findings highlight a negative and possible unintended consequence of activist hedge funds’ investment in firms, which provides some counterbalance to the numerous positive consequences documented in the prior literature on hedge fund activism.

Keywords: Activist Hedge Funds, Shareholder Activism, Management Guidance, Disclosure

JEL Classification: M41, G23, G34

Suggested Citation

Chen, Jing and Jung, Michael J., Activist Hedge Funds and Firm Disclosure (September 28, 2015). Review of Financial Economics, April 2016, Vol. 29, pp. 52-63. . Available at SSRN: https://ssrn.com/abstract=2666783

Jing Chen

University at Buffalo, SUNY ( email )

Jacobs Management Center
Buffalo, NY 14260-1660
United States

Michael J. Jung (Contact Author)

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
New York, NY NY 10012
United States
212-998-0193 (Phone)

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