Where Do Shareholder Gains in Hedge Fund Activism Come From? Evidence from Employee Pension Plans

71 Pages Posted: 14 Jul 2017 Last revised: 2 Jan 2021

See all articles by Anup Agrawal

Anup Agrawal

University of Alabama - Culverhouse College of Commerce & Business Administration

Yuree Lim

University of Wisconsin - La Crosse - College of Business Administration

Date Written: December 31, 2020

Abstract

We find that defined benefit employee pension plans of firms that are targets of hedge fund activism experience underfunding and their defined contribution plans experience reductions in employer contributions. Pension underfunding occurs due to reduced employer contributions to the plans, which target firms justify by increasing the assumed rates of returns on plan investments and the discount rate used to compute the present value of plan obligations. Despite tilting plan investments toward riskier assets, pension fund performance does not improve after activists target a firm. Our evidence suggests that shareholder wealth gains from activism are partly wealth transfers from employees.

Keywords: Hedge fund activism, Employee pensions, Pension plans

JEL Classification: G34, G23, G30

Suggested Citation

Agrawal, Anup and Lim, Yuree, Where Do Shareholder Gains in Hedge Fund Activism Come From? Evidence from Employee Pension Plans (December 31, 2020). 29th Annual Conference on Financial Economics & Accounting (CFEA-Tulane) 2018, Available at SSRN: https://ssrn.com/abstract=3000596 or http://dx.doi.org/10.2139/ssrn.3000596

Anup Agrawal (Contact Author)

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Culverhouse College of Business
EFLS, Box 870224
Tuscaloosa, AL 35487-0224
United States
205-348-8970 (Phone)
205-348-0590 (Fax)

HOME PAGE: http://aagrawal.people.ua.edu/

Yuree Lim

University of Wisconsin - La Crosse - College of Business Administration ( email )

1725 State St
La Crosse, WI 54601
United States

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