Sell-Side Analysis and Hedge Fund Activism
57 Pages Posted: 31 Jul 2018 Last revised: 21 Mar 2019
Date Written: March 16, 2019
Recent literature has shown hedge fund activism to be an important external corporate governance mechanism. Sell-side analysts, however, provide idea generation and analysis to buy-side clients including hedge funds. We find that pre-intervention analyst reports are valuable to investors, leading to negative stock market reaction. We use textual analysis to introduce a new dictionary to identify the activism objectives and tactics of Brav, Jiang, Partnoy, and Thomas (2008) within analyst reports. We show that pre-intervention sell-side reports contain significantly more language related to subsequent activism. Higher activism dictionary content in pre-intervention sell-side reports is positively correlated with activism-date target stock performance and predicts multiple activist interventions. Our results suggest that critical voice of sell-side analysis reveals target firm flaws that influence subsequent hedge fund intervention outcomes.
Keywords: Analysts, Buy-Side, Hedge Fund Activism, Hedge Funds, Sell-Side, Shareholder Activism
JEL Classification: G10, G20, G23, G29, M41
Suggested Citation: Suggested Citation