Social Networks and Hedge Fund Activism

Review of Finance, forthcoming

52 Pages Posted: 15 Jun 2016 Last revised: 11 Apr 2022

See all articles by Yazhou He

Yazhou He

University of Manchester

Tao Li

University of Florida - Department of Finance, Insurance and Real Estate

Date Written: April 1, 2018

Abstract

We study the role of social networks in hedge fund activism. Actively managed funds whose managers are socially connected to activists are more likely than unconnected managers to invest in target stocks; their investment decisions are profitable. Importantly, such effects are greater for funds facing more severe information asymmetry. Connected funds are 14.2 percentage points more likely to support activists in proxy contests and contribute to reducing proxy contest costs. Our evidence shows that social ties benefit both connected investors and activists, and suggests that social networks reduce information asymmetry around activist campaigns by facilitating information exchange and increasing trust.

Keywords: Hedge fund activism, Information asymmetry, Social networks, Governance

JEL Classification: G23, G34

Suggested Citation

He, Yazhou and Li, Tao, Social Networks and Hedge Fund Activism (April 1, 2018). Review of Finance, forthcoming, Available at SSRN: https://ssrn.com/abstract=2794709 or http://dx.doi.org/10.2139/ssrn.2794709

Yazhou He

University of Manchester ( email )

Oxford Road
Manchester, N/A M13 9PL
United Kingdom

Tao Li (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

Warrington College of Business
Gainesville, FL 32611
United States

HOME PAGE: http://warrington.ufl.edu/contact/profile.asp?WEBID=7628

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