Hedge Fund Activism and Debt Maturity Structure

Abstract

We provide evidence that activist hedge funds significantly influence target firms’ debt choices. After hedge fund activism (HFA), the proportion of long-term debt significantly increases in US firms. Target firms’ debt maturity increases with post-HFA governance reforms; moreover, activists’ potential rent-seeking behaviour does not significantly affect targets’ debt maturity. Post HFA, target firms issue more bonds than loans; such preference for bonds explains the increase in targets’ debt maturity. However, we do not find that supply-side constraints influence this choice. Our findings indicate that target firms substitute their creditor-driven governance with a governance mechanism influenced by activist hedge funds.

Keywords: Debt maturity structure, Hedge fund activism, 13D filings

JEL Classification: G30, G32