The Benefits of Friendship in Hedge Fund Activism

59 Pages Posted: 15 Jun 2016 Last revised: 15 Feb 2020

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 use a social network framework to study the alliance building process that involves activists and other institutional investors and the channels that facilitate such interactions. Actively-managed funds whose managers are socially connected to activists are more likely to increase holdings in target stocks during activist campaigns. More importantly, connected investors vote against target management more often, and the effect is more pronounced when they raise their stakes. Connected institutions earn significantly higher returns than non-connected investors, and their presence contributes to activists' success. We rule out alternative explanations such as fund manager ability or similarity in portfolio choices.

Keywords: Hedge fund activism, Social network, Alliance building, Governance

JEL Classification: G23, G34

Suggested Citation

He, Yazhou and Li, Tao, The Benefits of Friendship in Hedge Fund Activism (April 1, 2018). 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, 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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