Hostile Activism: Hostile Tactics or Hostile Hedge Funds?

44 Pages Posted: 11 Apr 2017 Last revised: 31 Dec 2022

See all articles by Hugo Benedetti

Hugo Benedetti

ESE Business School - Universidad de los Andes, Chile

Ehsan Nikbakht

Hofstra University

Andrew C. Spieler

Hofstra University - Department of Finance

Date Written: August 14, 2017

Abstract

This research examines reputation building by activist hedge funds and provides two new findings regarding hostile activism. First, there is evidence of a permanent reputation effect to hostile activism. Activist hedge funds that previously engaged in hostile tactics receive on average a 3% higher CAR [-10,+10] on their subsequent non-hostile campaigns, compared to hedge funds that have not previously engaged in hostile tactics. This abnormal return is positively related to the level of the hostile reputation of the activist hedge fund. Second, results indicate that activist hedge funds with higher hostile reputations modify their non-hostile activism style to engage “hostile-like” targets and pursue “hostile-like” objectives but withhold the use of explicitly hostile tactics. These findings imply that (1) hedge funds can build a hostile reputation using their past engagement tactics and (2) market participants perceive and value such reputation as evidenced by the higher announcement return observed in subsequent targets.

Keywords: Hedge Fund Activism, Hostile Activism, Activist Hedge Fund Returns, Hostile Reputation

JEL Classification: G12, G13

Suggested Citation

Benedetti, Hugo E and Nikbakht, Ehsan and Spieler, Andrew, Hostile Activism: Hostile Tactics or Hostile Hedge Funds? (August 14, 2017). Available at SSRN: https://ssrn.com/abstract=2951146 or http://dx.doi.org/10.2139/ssrn.2951146

Hugo E Benedetti (Contact Author)

ESE Business School - Universidad de los Andes, Chile ( email )

Av. La Plaza 1905
San Carlos de Apoquindo, Las Condes
Santiago
Chile

Ehsan Nikbakht

Hofstra University ( email )

Hempstead, NY 11549
United States

Andrew Spieler

Hofstra University - Department of Finance ( email )

Hempstead, NY 11550
United States

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