Hedge Fund Activism, CEO Turnover and Compensation

59 Pages Posted: 18 Aug 2018 Last revised: 29 Jul 2020

See all articles by Wonik Choi

Wonik Choi

California State University, Fullerton - Department of Accounting

James Jianxin Gong

California State University at Fullerton

Date Written: July 20, 2020

Abstract

This paper examines the governance role of hedge fund activists by analyzing the impact of these activists on CEO turnover, CEO pay, and CEO pay-performance link in targeted companies. Using the difference-in-difference approach, we first find significantly higher CEO turnover following hedge fund activism. After we split target companies into the CEO-turnover and non-CEO-turnover sub-samples, we find that only new CEOs in targeted companies get more compensation following hedge fund activism while incumbent CEO pay does not significantly change. The relationship between CEO bonuses and return on assets following hedge fund activism also differs across the subsamples split by CEO turnover. Pay-performance relationship is enhanced by hedge fund activism for new CEOs, but not for incumbent CEOs. In additional analyses, we document that CEO turnover is positively associated with Tobin’s Q and shareholder votes on Say on Pay in target companies after hedge fund activism.

Keywords: Corporate Governance, Hedge Fund Activism, Executive Compensation, CEO Turnover, and Pay for Performance

JEL Classification: G34, G38, M12

Suggested Citation

Choi, Wonik and Gong, Jianxin, Hedge Fund Activism, CEO Turnover and Compensation (July 20, 2020). Journal of Accounting and Public Policy, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3234018

Wonik Choi

California State University, Fullerton - Department of Accounting ( email )

P.O. Box 34080
Fullerton, CA 92834-6848
United States

Jianxin Gong (Contact Author)

California State University at Fullerton ( email )

Department of Accounting
Mihaylo College of Business and Economics
Fullerton, CA 92831
United States
(657)278-3897 (Phone)
(657)278-4518 (Fax)

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