Friends or Foes? Activist Hedge Funds and Other Institutional Investors

Carrothers, A. (2017). Friends or foes? Activist hedge funds and other institutional investors. Economics and Business Review, (3)17 No. 1, 38-72.

50 Pages Posted: 17 Jul 2017 Last revised: 27 Sep 2017

Date Written: February 15, 2017

Abstract

Hedge funds are more likely to target firms with high levels of institutional ownership and demonstrate a preference for short-term focused institutional investors. Hedge fund activism generates short run and long run abnormal returns without increasing stock return volatility. Regardless of investment horizon, volatility is inversely related to prior period institutional ownership. The trading behavior of institutional owners with different investment horizons is consistent with hedge fund activism creating value. These findings hold regardless of whether investment horizon is based on portfolio churn rate or type of institution. Overall, the results suggest a mutually beneficial relationship between activist hedge funds and other institutional investors.

Keywords: hedge funds, shareholder activism, institutional investors, corporate governance

JEL Classification: G18; G23; G34, O16

Suggested Citation

Carrothers, Andrew Glen, Friends or Foes? Activist Hedge Funds and Other Institutional Investors (February 15, 2017). Carrothers, A. (2017). Friends or foes? Activist hedge funds and other institutional investors. Economics and Business Review, (3)17 No. 1, 38-72.. Available at SSRN: https://ssrn.com/abstract=2999977 or http://dx.doi.org/10.2139/ssrn.2999977

Andrew Glen Carrothers (Contact Author)

University of Prince Edward Island ( email )

550 University Avenue
Room 417 McDougall Hall
Charlottetown, Prince Edward Island C1A 4P3
Canada
9026205078 (Phone)

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