Hostile Resistance to Hedge Fund Activism
50 Pages Posted: 7 Jul 2016 Last revised: 17 Apr 2018
Date Written: March 15, 2018
When facing hedge fund activists, target firms often fight back. Targets with agency problems and those confronting the threat of investor coordination frequently engage in hostile resistance by implementing governance changes associated with managerial entrenchment. The market negatively responds to hostile resistance, and unless hedge funds counter-resist, these campaigns have worse operating performance, faster activist exit, and fewer mergers than do campaigns without hostile target resistance. By contrast, when hedge funds counter-resist with proxy fights, lawsuits, or unsolicited tender offers, the impact of hostile target resistance is reversed, and these campaigns have similar outcomes to campaigns without hostile target resistance.
Keywords: hedge fund activism, target firm resistance
JEL Classification: G23, G30, G34
Suggested Citation: Suggested Citation