Hedge Fund Activists' Network and Information Flows

67 Pages Posted: 28 Nov 2016 Last revised: 29 Aug 2017

Pouyan Foroughi

University of New South Wales

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2017

Abstract

This paper studies connections and information flows between activist hedge funds and other institutional investors and shows them as prominent factors in the success of activist campaigns. Using manager turnovers in connected mutual funds as exogenous shocks to activists' connectivity, I identify a positive causal effect of connections with other investors on the short-run and long-run performance of activists' campaigns and campaign characteristics. I also show that the two likely mechanisms through which activists benefit from their relationships with other institutions are information flows between institutional shareholders and well-connected activists before campaign announcements and higher support from other shareholders during the campaign. Overall, these results highlight that connections to other institutional investors benefit institutional asset managers.

Keywords: hedge fund activism, social network analysis, financial networks, manager turnovers

JEL Classification: G11, G14, G32

Suggested Citation

Foroughi, Pouyan, Hedge Fund Activists' Network and Information Flows (May 1, 2017). Available at SSRN: https://ssrn.com/abstract=2875369 or http://dx.doi.org/10.2139/ssrn.2875369

Pouyan Foroughi (Contact Author)

University of New South Wales ( email )

Sydney, NSW 2052
Australia

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