Hedge Fund Activists' Network and Information Flows

72 Pages Posted: 28 Nov 2016 Last revised: 4 Dec 2018

See all articles by Pouyan Foroughi

Pouyan Foroughi

York University - Schulich School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: November 1, 2018

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 (November 1, 2018). Available at SSRN: https://ssrn.com/abstract=2875369 or http://dx.doi.org/10.2139/ssrn.2875369

Pouyan Foroughi (Contact Author)

York University - Schulich School of Business ( email )

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